Sanders’ Tweet on Power of Vanguard, BlackRock, State Street Raises Eyebrows

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.

Other tweeters kept their comments brief.

A Twitter user called “wood-cutting hermit,” a self-described Sanders constituent, noted that “i have a 401k with vanguard. i put money into it for about 40 years, and now at age 76, i take a little out each month to supplement my social security. nothing about that is obscene.”

CNBC contributor Ron Insana also defended the investment firms, responding: “On behalf of public & private pensions, individual investors, endowments, foundations and other organizations looking to meet actuarial, retirement or philanthropic goals. They have to buy those companies to offer S&P index funds cheaply to clients. They don’t control the cos.”

And portfolio manager Roger Nusbaum tweeted: “These companies manage funds owned by individual investors which is how people who are lucky enough to have savings often invest for their long term. Please have someone explain this to you.”

Concerns Across the Aisle

While Sanders’ tweet may have prompted some disapproval and snark, he’s not alone in his concerns — and others on the social media platform appreciated his thoughts. Further, the tweet highlighted the parallel but fairly divergent concerns that the politically progressive senator, along with others, and his conservative counterparts have about Vanguard, BlackRock and State Street’s influence over corporate America.

Political conservatives have taken issue with the three investment companies’ influence in advancing what some have disparaged as “woke” corporate environmental, social and governance policy. 

Sen. Dan Sullivan, R-Alaska, introduced a bill this year to “rein in the power over corporations enjoyed by the biggest asset managers, many of whom have provoked Republicans” by embracing ESG standards for business, according to a press release.

Sullivan, replying to Sanders’ tweet, linked to his release and said, “If only someone had an idea – legislation, even – that could rein in the Big 3 and empower individual investors.”

New York Times columnist Farhad Manjoo, writing earlier this year, noted the conservative view that the three firms use their clout to promote liberal corporate policies, but, similar to Sanders, he argued the real danger is economic.

While the three firms “have been extraordinarily good for investors,” lowering costs and boosting returns, the columnist wrote, their concentration of corporate ownership could potentially supercharge “the oligopolistic effects of already oligopolistic industries.”

Pictured: Sen. Bernie Sanders, I Vt. (Photo: Graeme Jennings/Washington Examiner/Bloomberg)