A small club. Very exclusive. that of the gentlemen of the world stock exchanges. It is a small group of managers who control the vast majority of the world’s financial markets. And of course with American traction. The director goes through the funds of BlackRock, Vanguard, State Street, Fidelity and a few other entities. These companies are the major shareholders of the largest global corporations. Nothing escapes their net. We move from high tech to pharmaceutical, from arms manufacturers to major global banks. Not to mention the rating agencies. They control about 20% of the entire S&P500 index and, in less than twenty years, will get more than 40% of the votes on the boards of directors. Their growth has been breathtaking. In ten years, more than 80% of the capital entrusted to the funds ended up in their hands.
Major Crisis Consultants
But who are these real savings giants? Let’s start with the RocciaNera. BlackRock, led by Laurence Douglas (colloquially Larry) Fink, reigns supreme in the world of savings. Its assets under management amount to 10,000 billion dollars. BlackRock is so influential that its advisory division won the contract to manage the Federal Reserve’s economic stimulus program in April 2020 (in the midst of the health crisis produced by the pandemic). In the 2016 and 2018 stress tests, BlackRock and Vanguard were the EBA’s advisory firms, although they had bank stakes to watch. RocciaNera has also been appointed by the European Commission as a consultant for financial choices regarding the ecological sustainability of investments. BlackRock’s success is based on a data analysis system called Aladdin, which stands for Asset, liability, debt and derivatives investment network. This sophisticated software is controlled by five thousand central computers in four unknown locations and performs 200 million macro and micro calculations per week. Another part of Aladdin is made up of more than 2,000 computer scientists and analysts who assess economic and business data on a daily basis. In addition to the group’s 10 trillion financial products, Aladdin also oversees the development of approximately 30,000 investment portfolios. This advisory business accounts for around 10% of global business, comprising 200 pension funds, banks, insurance companies, foundations and other institutional investors. A curiosity: another success factor is manager Alister Hibbert. Although many of the group’s employees don’t even know who he is, he is the true Midas King of the company. Hibert, second Bloomberg, the highest paid man in BlackRock, with a salary higher than Fink’s own salary. The returns of the fund, BlackRock Strategic Equity Hedge, are the basis of its fortune.
The shareholders of the shareholder
In the closed circle of the most important managers, we find Vanguard. The company, headed by Mortimer J. Buckley, the leading administrator of index funds with assets exceeding $8.4 trillion. Since its inception, Vanguard has been characterized by a strong approach to passive management. The group was created by John C. Bogle (the man who designed the first index product) in 1975. Successors expanded the offering, distributing both ETFs and actively managed funds. Unlike other managers, Vanguard is not listed. The company controlled by its own funds which are subscribed by savers or institutional investors. Some experts believe that this structure avoids conflicts of interest. Recall that Vanguard is the main shareholder of BlackRock (11%), Fidelity (9.7) and State Street (9.4). State Street and Fidelity are vying for third place in this special ranking. The latter company headed by Scotswoman Anne Helen Richards manages assets of more than three trillion euros, supplying its products to clients aiming for long-term performance. State Street Global, led by Joseph L. Hooley, was founded in 1792. With assets of nearly $3.5 trillion and over $35 trillion in custody and administration, the premier institutional asset manager. The state of the art this. But all that glitters is not gold. Wall Street is beginning to wonder if such a concentration of power might not be dangerous. The leaders of these savings giants are indeed the dominant shareholders of all the most important companies in the world, in particular those with widespread ownership. It is no coincidence that many public auditors, starting with the US Department of Justice and the Federal Trade Commission, are attentive to compliance with antitrust laws, conflicts of interest and any manipulation of the markets. It is clear that such a force can inspire the deference of the leaders. With the possibility, if not of influencing the choices, at least of making decisions in accordance with the wishes of the managers. Indeed, there is a delicate balance between the choices of managers and the value of the share given that stock options now represent a significant part of their remuneration.
Too much activism?
After the Great Depression of 2008, there was a lot of talk about the banks’ concentration of power in an attempt to introduce rules that would contain their weight. Today, the giants of parallel bank they circumvented the credit system, creating a powerful financial oligopoly. Major economic institutions, such as the Financial Stability Board and the IMF, had to admit that the non-banking financial system has outperformed the traditional asset management structure. But then why not intervene? The simplest objection is that savers invest their money freely. It is therefore normal that they favor passive funds and ETFs which apply low fees because they replicate the performance of the indices without relying on a traditional manager. Charlie Munger, longtime partner of Warren Buffett in Berkshire Hathaway, said: We have a new group of emperors, these are the people who vote for stocks held by index funds. I’m thinking of Fink’s world and I’m not sure I want him as emperor. A reflection that is beginning to find supporters. The main accusation is that passive managers have become activists. And it does not stop there. Rather than push corporations for higher returns, they try to impose their political agenda. At the meeting, the boards risk finding themselves in the minority if they refuse to accept BlackRock & Co.’s thinking on climate and so-called stakeholder capitalism (the doctrine that in addition to shareholders, the interests of climate, personnel and other social partners). Two years ago, Fink wrote a letter to CEOs threatening to vote out executives if they failed to follow the environmental, social and governance transparency guidelines prescribed by the sustainability accounting standards board. But this is not enough. This year, Fink took the lead from directors, saying that employees increasingly view their employer as the most trusted, informed and ethical source of information, and stakeholders, including employees , customers, communities and regulators, need to know where the social issues of our businesses lie. Anyway, one more earshot. Sure, technology has standardized finance, but we know that Wall Street just doesn’t like having the reins too short.