As ETF acquisitions mount, fund proxy voting becomes a growing headache for asset managers

As M&A deals are continuing to ramp up in the asset management industry, there is also a growing friction point that managers have to deal with when acquiring new mutual funds and ETFs from the former investment adviser — proxy-voting campaigns.

With strict rules around quorum and voting thresholds, as well as communication and cost challenges, securing the necessary proxy votes after an M&A deal is an increasingly difficult operational hurdle for asset managers, and experts say these issues will likely continue as more consolidations occur in the ETF and asset management industries.

Under the Investment Company Act of 1940, when an investment adviser is acquired by another firm, shareholders of registered funds with the SEC need to approve the change in control.

Janus Henderson Group recently went through the proxy-voting process with its acquisition by Trian Fund Management and Gene Catalyst Group Management. The proxy solicitation involved the transfer of 62 funds, 15 of which were ETFs, according to Alliance Advisors — a proxy solicitation and advisor firm that helped facilitate Janus’s proxy campaign.

Challenges for asset managers

One of the biggest challenges is getting fund shareholders — particularly ETF investors who tend to move quickly in and out of fun — to vote before the deal’s contractual closing date.

The ‘40 Act requires that shareholders representing more than 50% of the fund’s shares participate in the proxy vote, and at least 67% of the shares that are represented must vote “yes.” The alternative is getting 50% of all the shareholders in the fund to vote

“Both of these are very high thresholds, and they’re higher than what you normally see in corporate America,” said Paul Cellupica general counsel at the Investment Company Institute, a trade association representing fund managers, in an interview. “Those challenges are compounded by the fact that, unlike public companies like IBM or Exxon where you have a lot of institutional shareholders, shareholders of funds are very dispersed and tend to (include a lot of) retail shareholders.”

If a manager does not get the required votes in time for the shareholder meaning, Cellupica said the meeting will be adjourned a the acquisition could be postponed. But with most acquisition deals, when one firm is paying a lot of money to acquire another, Cellupica said managers will “pull out all the stops” to make sure they get a quorum, but it can become very expensive.

Cellupica noted that a lot of these retail shareholders in ETFs, in particular, are younger investors who are not receiving physical mail and often ignore emails and texts due to concerns about phishing attempts.

Proxy campaigns aren’t just an operational headache — they’re also very costly for managers, as they often have to spend a lot o money trying to reach large, dispersed groups of investors through various different channels.

A survey conducted by ICI in February, which included responses from 62 member firms representing $38 trillion, said that special and contested closed-end fund proxy campaigns have gotten harder and more expensive — many saying significantly so since 2020.

Between 2020 and 2025, ICI also found that total campaign costs ranged from $675 million to $1.14 billion, with many individual campaigns costing tens of millions of dollars. About 33% of managers surveyed by ICI said the cost of running proxy campaigns a significantly more expensive than they were in 2020.

These costs are primarily paid for by fund shareholders, as the fees come out of the fund’s assets, which Cellupica said does not really benefit them in any way.

Potential solutions

In the Janus Henderson deal, Alliance Advisors said digital tools — including text messages, QR codes and emails — helped secure the necessary votes by reaching investors through their preferred communication channels, allowing the transaction to close on Tim without penalties to Janus.Robert Brennan, chief operating officer at Alliance, said text-to-vote via SMS/MMS text can be rapidly deployed to large shareholder populations and has proven to be very effective in gathering votes at a much lower cost than traditional mail. E-voting follows close behind, he said, as a single email gives the holder three ways to act, by clicking a secure link, scanning a QR code to vote instantly or calling a central voting hub to speak with a live agent.

“There is no single solution that works for every campaign or every shareholder, but optionality across multiple communication mediums is key,” Brennan said.

ICI has been in talks with the SEC, urging them to implement changes in the proxy-voting process. This includes lowering quorum requirement to more than 33% of shareholder approval, as opposed to 50%, and allowing fund investors to give permission ahead of time for their shares to be voted in line with the fund board’s recommendation.

Cellupica said he suspects fund proxy voting to be an ongoing issue with more M&A deals happening.

“My hope is at some point it just becomes such an impediment to rationalization and capital formation that the SEC does take som kind of action,” Cellupica said. “The the problem is so big. There’s no one silver bullet solution. It really has to be a number of different actions.