What You Need to Know
- Sanders laments the three firms' influence over wide-ranging U.S. corporate policies.
- Investment pros and others defended the companies' record in making money for investors.
- Political conservatives, meanwhile, have been targeting the fund managers' ESG policies.
Sen. Bernie Sanders, I-Vt., drew some virtual head-shaking over a recent tweet that took aim at what he called three major investment firms’ “obscene” financial power.
“Today, in America, just three Wall Street firms – BlackRock, Vanguard and State Street – manage $22 trillion in assets. These three firms are major shareholders in more than 96 percent of S&P 500 companies. Obscene,” Sanders tweeted on July 11.
The tweet didn’t detail more specific concerns about these “Big 3” firms, the leaders in offering the passive index funds held in many Americans’ retirement accounts, but Sanders has been warning about their control over so much money.
In prepared remarks in February, he said the money the firms oversee almost matches the U.S. gross domestic product and is more than five times Germany’s GDP. Sanders noted their “significant influence over many hundreds of companies that employ millions of American workers and, in fact, the entire economy.”
At the time, he lamented their power to shape policies such as CEO compensation, mergers, pension benefits and environmental commitments.
Vanguard, BlackRock and State Street cast about a quarter of votes at S&P 500 companies’ shareholder meetings and could control 40% of those votes within two decades, according to a 2019 Boston University School of Law article.
Days after Sanders’ tweet, Masters in Business podcaster Barry Ritholtz, co-founder, chairman and chief investment officer of Ritholtz Wealth Management, took issue with Sanders in a blog post headlined “Even Socialists Misunderstand Indexing.”
“Bernie, Bernie, Bernie,” he wrote. “Of all the endless Wall Street things to be legitimately angry about — excess fees, leverage, conflicts of interest, risk-taking, bailouts … — this has to be the single worst hot take by any politician on either side of the aisle.”
Sanders’ position “shows a fundamental misunderstanding of what’s been going on in the world of investments, and how the indexing revolution has altered the basic premise of who wins and loses on Wall Street,” Ritholtz wrote.
He called the rise of BlackRock, Vanguard Group and State Street a good thing for investors, retirement accounts and labor, and said it “has dramatically tilted the field in the favor of Main Street against Wall Street, from the big institutions that Senator Sanders despises toward the small investors who make up much of his core base and audience.”
By design, through passive indexing, these companies are major shareholders in virtually the entire market, Ritholtz added. “They have bulked up not through nefarious means, but rather, by providing better long-term performance and at a lower price. It is the opposite of obscene — it is a low-cost, tax-efficient, super productive way to invest for the future,” he wrote.
He cited a Bloomberg column by a colleague who wrote that as of 2016, Vanguard had saved investors $175 million in fees since its founding more than 40 years earlier.