Disproving assertions that a group of asset managers dominates significant American corporations.

An index mutual fund or exchange-traded fund is likely where some of your money is invested if you have an account, regardless of whether it's a 401(k), individual retirement account, or brokerage account.

Over time, investment products that mimic market indexes have gained popularity due to their low costs and better returns compared to active managers.

The three asset managers that dominate the passive investing world are Vanguard, BlackRock (which oversees iShares ETFs) and State Street, which manages the SPDR line of index funds.

You may have encountered these names in your company's 401(k) options or on social media.

You can find posts on X or Instagram claiming that asset managers have a significant amount of control over U.S. corporations.

Politicians, including House Judiciary Chairman Jim Jordan, have stated that companies with significant shareholder voting power at major U.S. companies use that power to advance political initiatives, even outside of conspiracy circles.

In a widely cited example, asset managers supported Engine No. 1 in its fight to appoint new directors to ExxonMobil's board, who could potentially persuade the energy company to decrease its carbon footprint.

Vivek Ramaswamy, a presidential hopeful, has frequently compared these companies to a "cartel," claiming they are pushing for ESG policies that prioritize diversity and the environment over shareholders' financial interests.

The next time Vanguard, BlackRock, and State Street appear in your feed, it's important to understand their significance in the financial industry.

No, these companies don’t ‘own’ major corporations

The trio of companies is often claimed to "own," "control," or be "top investors" in significant American corporations such as Apple, Lockheed Martin, and Pfizer.

The top institutional investors in Apple, Lockheed, and Pfizer are Vanguard, BlackRock, and State Street.

Daniel Sotiroff, senior manager research analyst for Morningstar Research Services, states that they own a significant amount of publicly traded shares in those companies. However, he advises taking a step back to consider the reason behind this ownership.

These companies manage index funds with billions of dollars in assets, such as Vanguard 500, which tracks the S&P 500 and has over $350 billion, and State Street's equivalent ETF, which has over $400 billion.

You own the money that is being invested in S&P 500 companies, including Apple, Lockheed Martin, and Pfizer.

According to Sotiroff, these companies hold these shares as representatives of their investors, not for their own corporate purposes. They did not acquire these stakes with their own funds. Instead, they purchased them on behalf of their investors.

As of June 2023, BlackRock, a publicly traded company, had more than $9 trillion in funds under management on behalf of its shareholders, while the total value of each share of its stock was $95 billion.

BlackRock generates revenue through fees paid by its investors, rather than earning profits from the companies it invests in. Consequently, BlackRock does not own significant stakes in numerous U.S. corporations. Instead, the shareholders of BlackRock funds own those stakes.

No, asset managers don’t vote as a ‘cartel’

Even though these asset managers do not own the shares outright, they still hold them on your behalf, allowing them to use your money to influence corporate decision-making through proxy voting.

Shareholders who cannot attend the annual meeting of a company can still participate in the voting process by submitting a proxy ballot for the issues that will be discussed, such as electing new board members, approving corporate actions, or setting executive bonuses.

Instead of receiving 500 proxy ballots, asset managers vote on behalf of shareholders in an S&P 500 index fund, advancing what they generally believe to be the best financial interests of their shareholders.

Critics argue that asset managers use their voting power to promote ESG initiatives that they claim harm these companies' profits.

ESG advocates contend that being ready for climate change demonstrates a company's ability to manage risk, while opponents argue that ESG policies are merely "woke" diversions that hinder profitable businesses.

Vanguard is very transparent about its voting process and how it votes. A review of the literature published by asset managers reveals that the majority of their votes are on routine corporate matters. During the 2023 proxy season, Vanguard voted in favor of management-led proposals to elect directors 93% of the time, totaling 24,679 votes.

Despite the criticism surrounding BlackRock's ESG initiatives, the company reports that the majority of shareholder proposals on environmental and social issues lacked economic merit or addressed issues already being addressed by the companies themselves. As a result, BlackRock supported only 7% of such proposals, which is 26 out of 399.

The claim that the "Big Three" are acting as a cartel on ESG issues is unfounded, according to Stash Graham, chief investment officer at Graham Capital Wealth Management in Washington, D.C. Graham argues that the Big Three may not even have the power to influence ESG issues, as 80% of shares are owned by shareholders outside of the Big Three.

The Big Three asset managers, Vanguard, BlackRock, and State Street, rarely vote in unison, according to a Morningstar report that analyzed their proxy voting records from the two years ending in March 2023. The report found that the three managers disagreed on key votes more than two-thirds of the time.

Some firms are testing out programs to address concerns about big mutual fund companies voting on behalf of their clients on political issues.

Certain funds managed by Vanguard, BlackRock, and State Street now offer shareholders the option to direct the asset managers on how they want to vote on specific issues.

These firms are recognizing that they are investing your money in markets, not their own. If you are dissatisfied with their voting decisions, there is a possibility that these changes may enable you to express your opinion.

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