Norges Bank Investment Management (NBIM), the arm of the Norwegian central bank which manages the country’s NOK 7.7 trillion (EUR 828 billion) Government Pension Fund Global (GPFG), has written a letter to MSCI backing the introduction of a minimum threshold for inclusion in its equity indices based on a ratio of the company’s voting rights.

NBIM published the letter a few days after making another letter public on a similar theme of investor rights, which was addressed to the Hong Kong Exchange.

In the letter to index provider MSCI, NBIM’s equities CIO Petter Johnsen and its head of policy development Jonas Jølle referred to a discussion about whether voteless companies should be eligible for inclusion in equity indices.

The debate followed the initial public offering (IPO) of American technology and social media company Snap which runs the app Snapchat, the men said.

MSCI issued a proposal in June for the treatment of non-voting shares.

NBIM told MSCI in the letter than it supported the introduction of a minimum threshold for the inclusion of equities into an index based on a ratio of the company’s voting rights.

“Any constituent failing to clear the threshold should have the investability weight of all its securities — both voting and non-voting shares — reduced.

“Voteless companies should have a zero investability weight,” Johnsen and Jølle wrote.

Even though the Snap case was an extremely rare, if not unique, situation, the pair said: “The broader question is how multiple-class shares and unequal voting rights, particularly with new listings, are changing the market for equity investors.”

Including voteless companies in an index put index users wanting formal influence over the companies they invested in at a disadvantage, they said.

“Voting rights are a fundamental issue for all investors,” the pair said.

Shareholder protection could be eroded

In NBIM’s letter to the Hong Kong Exchanges and Clearing — which runs the Hong Kong Exchange —Johnsen and Peter Gjessing, senior analyst at the investment manager, criticised aspects of the exchange’s plan to introduce a third board.

This “New Board” is meant to serve as a separate market aimed at “new economy” tech startups.

Johnsen and Gjessing said proposal in its current early draft form could risk eroding shareholder protection.

“We would have liked to see a more balanced consideration of the interests of all the stakeholders in the listing environment,” they said.

“Considerable weight is given to the interests of the exchange in attracting the listing of certain issuers compared to the interests of long-term investors in supplying capital to issuers,” they said.

NBIM said its main concern was the suggested introduction of Weighted Voting Rights (WVR) on the Hong Kong exchange’s new board, which it said would let issuers give unequal voting rights to shareholders of different share classes.

Even though the exchange was only planning to introduce WVR to the new board, the pair said: “In our view this does not provide sufficient safeguards against the weakening of investor protection.”