How big index fund and ETF providers have increased their sway over publicly-traded companies while potentially discouraging competition. What can be done about it?
Topics covered include:
- How market share for assets under management has become increasingly concentrated with big fund complexes like Vanguard and BlackRock
- What is a fiduciary relationship and how do asset managers serve as fiduciaries
- Why do investors in index funds and ETFs have no input as to how fund sponsors vote on shareholder proposals
- What percentage of outstanding shares do Vanguard and BlackRock own of publicly traded companies like Apple, Target, or gun manufacturers
- How Vanguard and BlackRock use engagement and voting policies to influence publicly traded companies, particularly when it comes to climate risk and diversity
- How ownership by Vanguard and BlackRock in publicly-traded companies in the same industry could discourage competition.
- What can be done through regulation or through individual action to reduce Vanguard and BlackRock’s influence
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Welcome to Money For the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today’s episode—390. It’s titled “Are BlackRock and Vanguard Too Big and Powerful?”
Too Much Control?
I recently received an email from a long-time listener; she is in her 80s. She mentioned that her individual retirement account, all of her grandchildren’s college 529 plans, and most of the rest of her net worth is managed by Vanguard.
She finds Vanguard easy to work with. They’ve provided helpful tax management strategies, but she sent me an article that concerned her. It was an editorial in the New York Times by Farhad Manjoo. It was titled “What Blackrock, Vanguard, and State Street are Doing to the Economy.”
Manjoo suggests these three asset management firms control too much of the economy. How can that be? Aren’t they just investing in stocks on behalf of their clients, most of which are in index funds? Yes, of course, but the amount that they manage in assets keeps growing.
The most recent ICI Fact Book had an interesting chart. It showed in 2005, the five largest fund complexes, which would include Vanguard and BlackRock, controlled 35% of total assets in mutual funds and ETFs. By 2021, or year-end 2021, it was 54%.
The top 10 now controls 66% of assets and the top 25, 83% of assets. The two largest by far are Blackrock with $9.6 trillion in assets under management, followed by Vanguard with $8.1 trillion in assets under management.
BlackRock recently wrote in an investment stewardship update that (paraphrasing) “the assets we manage are owned by other people, our clients, who depend on Blackrock to help them achieve their investment goals. These clients include public and private pension plans, governments, insurance companies, endowments, universities, charities, and ultimately, individual investors among others, are voting on client’s behalf were so authorized by them and will always be undertaken with the appropriate consideration of our client’s long term economic interests as their fiduciary.”
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