Debunking claims that a ‘cartel' of asset managers controls major U.S. corporations

You may have an investment account.

401(k)

,

Individual Retirement Account

You may have money in an IRA, a brokerage account or even a savings account.

Index mutual fund or ETF

.

Over the years, these investment products have gained in popularity due to their ability to mimic the performance of stock market indexes.

Low costs and superior returns

When compared to the work of managers who are active.

Three asset managers dominate the world of passive investing: Vanguard (which manages iShares ETFs), BlackRock (which runs iShares ETFs), and State Street which manages the SPDR index funds.

You may have seen these names in the 401(k), or retirement plan, of your employer. You may also have seen these names on social media, depending on the algorithm you use.

You'll find many posts on X and Instagram from people claiming that these asset managers "own" or control a large number of U.S. companies.

Politicians are not just a fringe group.

Jim Jordan, the Chairman of the House Judiciary Committee

These companies are said to use their huge voting power as shareholders at major U.S. corporations, in order to promote political initiatives.

As an example, critics have cited the

Asset managers successfully backed activist hedge funds Engine No. 1

In a fight to install new directors to ExxonMobil’s board, who could push the energy company to reduce its carbon foot print.

Presidential Candidate

Vivek Ramaswamy compared these companies to a "cartel" on numerous occasions.

Alleging that they want to usher you in

ESG policies

Shareholders' interests are sacrificed to issues such as diversity and the environment in American companies.

What you should know when Vanguard, BlackRock or State Street appear in your news feed.

These companies do not 'own' large corporations

You'll find many memes about this trio of American companies that claim they "own," control," or "are major investors in" large American corporations like Apple, Lockheed Martin, and Pfizer.

Major asset managers will be near the top of any list if you search for the largest institutional investors. Vanguard is Apple's largest shareholder. BlackRock is second. State Street, Vanguard, and BlackRock, in that particular order, are the three largest shareholders of Lockheed. Vanguard, BlackRock, and State Street are the top three shareholders of Pfizer.

Daniel Sotiroff is a senior manager research analyst at Morningstar Research Services. He says, "They own a significant portion of publicly traded shares in those companies. So that's correct." But then, you have to step back and think about why this is.

This is because these companies manage index funds which are extremely popular and filled with money from investors. Vanguard 500's assets, which track the S&P 500 performance, are more than $350 Billion. State Street's ETF equivalent has over $400 billion.

This money is invested in S&P 500 companies such as Apple and Lockheed Martin, but also Pfizer. It doesn't belong the asset managers. You own it.

Sotiroff says, "These companies hold these shares for their investors." "They do not own them for personal corporate reasons." "They didn't buy these stakes with their own money."

Investors are aware of this. BlackRock, a publicly-traded company, invested more than $9 trillion on behalf of shareholders as of June 20, 2023. The total value of each share of BlackRock's stock is $95billion.

BlackRock does not make money from investing in companies. Instead, it makes money from collecting fees from investors. BlackRock does not own any part of the U.S. companies it invests in. BlackRock fund shareholders do.

Asset managers do not vote as a cartel

Even if they don't hold the shares in their own name, these asset managers still do. They can then use your money in order to influence corporate decisions through proxy voting.

Shareholders who are unable to attend a shareholder meeting can vote via proxy. They send a ballot by mail to the company to vote on any issues that might be brought up at the annual meeting. They may include approving corporate actions, such as mergers and acquisitions, or setting bonuses for executives.

You own shares in approximately 500 companies if you own the S&P 500 Index Fund. Asset managers will vote for you instead of sending 500 proxy ballots. They do this to make it easier.

The critics are here. Ramaswamy, among others, claims that asset managers are using their voting power to promote ESG initiatives - those that aim to improve environmental and social issues and corporate governance - that they say are detrimental to the bottom line of these companies.

It's up for discussion whether that is actually the case. ESG advocates argue that, for example, a company's preparedness for climate changes shows it is managing risks. ESG policies are criticized as a "woke" distraction that interferes with profitable businesses.

Asset managers are transparent in their voting and the process they use. You'll see that most of the votes in the asset manager literature are for mundane corporate issues. In the proxy year of 2023,

Vanguard votes 93% of the time

All 24,679 directors should be elected in accordance with the management's proposals.

BlackRock reports that despite all the fuss about its ESG initiatives the majority of shareholder proposals regarding environmental and human issues either had no economic merit or were issues that companies already addressed. BlackRock claims that the company has benefited as a result.

Supported just 26 of 399 proposals -- 7%

.

Any claims that the "Big Three" act as a cartel in ESG matters are also false. Stash Graham, chief executive officer of Graham Capital Wealth Management, Washington, D.C., says that they might not have the power to make it happen.

The Big Three don't vote together. An analysis of Vanguard's, BlackRock's and State Street's proxy voting for the two years ending March 2023 revealed that:

Morningstar report found

The three asset managers differed on important votes in more than two-thirds of cases.

You might still think, "I don't want these large mutual fund companies to vote on my behalf on issues that can be perceived as political." These concerns are being addressed by firms testing programs.

Vanguard

,

BlackRock

You can also find out more about the following:

State Street

In recent years, all of these funds have launched pilot programs that allow their shareholders to tell the asset managers how they would like to vote.

These firms acknowledge that they are investing your money in markets and not theirs. If you don't agree with the way these firms vote on your behalf there is a possibility that you could be able to voice your opinion soon.

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