AG Lynn Fitch Questions BlackRock-linked Mutual Fund Directors’ Financial Entanglement

Below is a political press release from Mississippi Attorney General Lynn Fitch:

Attorney General Lynn Fitch and 14 other state attorneys general are raising questions regarding a potential conflict of interest between BlackRock mutual fund directors and the mutual funds they are managing. In a letter, the Attorneys General questioned whether BlackRock should continue as an investment adviser to those funds and expressed concerns over the company’s Environmental, Social, and Governance (“ESG”) investments.

“I take my responsibility to protect Mississippians from deceptive and unfair business practices and to oversee state securities laws very seriously,” said Attorney General Lynn Fitch. “Here, BlackRock has directors managing mutual funds for which they are also serving as investment advisors. An investment advisor who stands to gain or lose on the advice they offer is a scenario that has to raise red flags. We have informed BlackRock that we are concerned with this practice and expect them to address it promptly.”

The letter raises a number of concerns including financial relationships that could undermine director independence and over-boarding; whether there has been sufficient disclosure, oversight, and investigation into potential conflicts of interest by BlackRock as investment adviser to the mutual funds; and the actions of the directors related to BlackRock’s public commitments to use client assets for the purpose of advancing ESG goals rather than for the sole purpose of maximizing shareholder value.

As noted in the letter, “Six of the nine Mutual Fund directors have a relationship with BlackRock as either a BlackRock employee or a board member of a company where BlackRock owns more than 5% and in many cases is the first or second largest shareholder. The financial entanglement between the Mutual Fund directors and BlackRock undermines the principles of independence undergirding the Investment Company Act of 1940, as well as state law principles of independence.”

In addition, BlackRock’s ESG commitments to push the political goals of programs like Climate Action 100+ and the Net Zero Asset Managers raise serious concerns over BlackRock’s duty to act exclusively for the financial benefit of its shareholders and may have cost mutual funds returns. For example, the Attorneys General raised questions about BlackRock’s decision to divest from coal when the seven largest coal companies in the United States have averaged a share price increase of 981 percent since July 2020.

The Attorneys General wrote, “BlackRock’s activist commitment to divest from coal may have adversely affected these funds and others like them. At the very least, BlackRock’s failure to increase its investments in coal may have caused these funds to forgo substantial growth. We seek to understand whether BlackRock disclosed material information and whether you analyzed that information.”

In addition to the concerns raised in the letter, the Attorneys General are requesting written responses to the seven questions listed in the letter to use to determine “the future course of our actions.”

A list of questions is included in the letter available here.

In addition to General Fitch, Attorneys General from Alabama, Arkansas,Georgia, Iowa, Indiana, Kansas, Louisiana, Missouri, Montana, New Hampshire, South Carolina, South Dakota, Utah, and Virginia joined in sending the letter.