Three index-fund firms now dominate US corporate equity ownership

Evidence

In the 1980s, these institutional investors started delegating their investment responsibilities to for-profit asset managers, a new sector that swelled with the introduction of privatized retirement funds in the 1990s. The asset management sector is now highly consolidated. The largest 1 percent of asset managers control 61 percent of assets managed. Three asset management firms in particular—BlackRock, Vanguard, and State Street, known as the “Big 3”—have found outsized influence by cornering the market in exchange-traded funds (ETFs). The latter investment instrument is similar to a mutual fund, in that it bundles a number of different assets, but is more liquid and has lower fees. Over a long period, active investment management and stock picking rarely outperforms a diversified index fund, and many investors, institutional and personal, have shifted to index funds as a result. Vanguard, the largest provider of mutual funds and the inventor of the index fund, holds more than 8 trillion in assets under management. BlackRock, the developer of Aladdin, a risk-management software system that is used by it and its rivals, manages more than 10 trillion of assets. As of 2017, if counted collectively, BlackRock, Vanguard, and State Street are the largest owners of equity in 88 percent of the companies listed on the S&P 500 (an index of the five hundred largest U.S. publicly traded companies as determined by market capitalization), up from 25 percent in 2000. — Andrew deWaard, Derivative Media, 124

Categorization

• DEFINE: Defines ETF as a mutual-fund-like bundle that is more liquid with lower fees, and identifies the Big 3 as BlackRock, Vanguard, State Street.
• XREF: connects to: Three asset managers now dominate almost all major US firms — Clara E. Mattei, Escape from Capitalism, 133; Corporate ownership and profit concentrate in a tiny number of firms — Samuel Bowles and Herbert Gintis, Schooling in Capitalist America:…, 623