Much like the money trusts in the early 20th century that controlled substantial amounts of wealth, the biggest U.S. asset managers today pose threats to the U.S. economy and financial markets, according to a new report from the non-profit American Economic Liberties Project.
The report, “The New Money Trust: How Large Money Managers Control Our Economy and What We Can Do About It, focuses on what it calls the “Big Three” asset managers — BlackRock, Vanguard and State Street — which combined manage over $15 trillion in global assets, equivalent to more than three-quarters of U.S. GDP and more than three times the GDP of Germany.
BlackRock’s assets, for example, hold a 5% or greater stake in more than 97% of the S&P 500 companies, writes Graham Steele, author of the report and a senior fellow at the Project, a non-profit and non-partisan organization focused on challenging the dominance of monopolies “over markets and society.”
BlackRock also wields political power, as exemplified by the Federal Reserve hiring the firm this year to help manage its corporate bond buying programs, which included BlackRock ETFs, years after the firm assisted the Fed in 2009 to help address the Great Financial Crisis.
The American Economic Liberties Project report also highlights index funds, which have total assets of $11 trillion, and the biggest asset managers in that universe.
The combined assets of BlackRock, Vanguard and State Street account for about 82% of the S&P 500’s market capitalization, about 25% of shares that voted in director elections at S&P 500 companies in 2018, and 73%-80% of global ETF assets.
“The outsized footprint of a few large financial companies poses new issues for the governance of corporate America, the competitiveness of our economy, the concentration of political power, and the stability of financial markets,” writes Steele.
“The numbers are staggering: the largest 1% of asset managers control 61% of sector assets — 243 times the bottom 50% and 45 of the 50 largest ETFs,” writes Steele.
The three big fund managers “have outsized influence over the companies that their funds invest in,” according to Steele. “Their dominance is why stock buybacks have increased more rapidly for companies with a high amount of index fund ownership and why there was no shareholder engagement for close to 93% of portfolio companies from 2017 through 2019.”
Their power over “critical services … increases both their systemic importance and the influence that they have in the financial marketplace,” according to Steele.