We live in a remarkable world. As of July 20 2021, three asset managers, BlackRock, Vanguard Group and State Street Corp. collectively owned about 22% of the average S&P 500 company, according to data compiled by Bloomberg, up from 13.5% in 2008.
I realize this will be an oversimplification, but if Blackrock (i) owns everything, (ii) cannot exit and (iii) expects the governments of the world to de-risk . . . the world, this sounds more like some kind of mirror-world communism than capitalism, with the dictatorship of the proletariat replaced by the dictatorship of Larry Fink. Coming at it from another angle, if someone owns approximately everything, and will go on owning it approximately forever, why should anyone be paying them anything more than a nominal record-keeping fee? As I said, oversimplified, but what a world we live in.
The expense ratio charged by the biggest ETFs are extremely low. Vanguard charges 3 basis points for one share of VOO, its S&P 500 ETF (It replicates the S&P 500 index.) That's about $3 of fees for $10,000 of the ETF. This factoid argues for the dominance of fees in the business model.
Blackrock, however, does not own these assets. If you own IVV in your 401k, YOU own it. If Blackrock fails you will not lose your asset. A path to instability might exist in Blackrock's ability to lend shares out of ETF portfolios. I know that it engages in securities lending. (These comments fit for most ETF issuers.
you didnt simplify anything, if anything you overcomplicated it by calling a basic shift in economic structure the “dictatorship of the proletariat” for reasons i reckon you’d have to work out with a therapist over a number of sessions to realize
So given this rethink of capitalism as asset manager led de-risked capitalism, what does this imply for "inflation"? It used to be, pre-blackrock, share issuing public cos hated inflation. Clearly it's not quite the same reaction in this alternate universe?
I've been trying to figure out how the asset managers became market consolidators. It's legitimately bothered me. Thanks Adam. I subscribed immediately after following the cast of characters you introduced me to in your analysis.
I was recently asked by a friend from previous fossil fuel divestment campaigns about the rise of Engine No 1. I think it is essential to see the dynamics around divestment and ESG/engagement as related to the rise of asset manager capitalism.
These huge financial institutions hold the entire market; the entire market is threatened by climate change (whether you see this in financial terms or in terms of a balance of power between classes, OK, either way). This has worked for them so well that they are not likely to change. Exit is not how they exert control -- voice (including engagement) is. Divestment remains relevant for asset owners like institutional investors, pension funds etc. But their power relative to asset managers is on the wane.
It is important to see the divestment movement (and GND, I think, whose positivity capital needed to respond to) as generative of the ESG and engagement boom. These are ways that capitalism integrates and responds to the divestment critique. But just because of this dialectical movement does not mean we are moving "forward" -- capitalism is this resilient, we've learned -- and certainly not necessarily at the pace necessary to match climate change. So what next, then?
Perhaps here we can reflect on the ultimate limitations of divestment and its indexical value pointing to the ultimately political nature of climate action. Divestment characterized finance as a terrain for climate action; ESG and engagement render this critique technical, defanging it of the ultimately political nature of the critique. This is the split of "double materiality," by which business and finance increasingly refer to the business case for climate action, submerging their own effect on climate change within its effect on them. This rhetorical turn limits the political imagination of what is possible in climate action -- a dangerous game given the pace and scale at which we have to move to avoid runaway climate impacts.
If you were designing a "universal capitalist," it's true that an ETF manager is close to the ideal. Is this actor capable of what is necessary? On the one hand, they have power perhaps no one else does, and skin in the game -- but only their own. This is the climate Leviathan. https://haydenhiggins.medium.com/riding-the-leviathan-f512888ce08c
I realize this will be an oversimplification, but if Blackrock (i) owns everything, (ii) cannot exit and (iii) expects the governments of the world to de-risk . . . the world, this sounds more like some kind of mirror-world communism than capitalism, with the dictatorship of the proletariat replaced by the dictatorship of Larry Fink. Coming at it from another angle, if someone owns approximately everything, and will go on owning it approximately forever, why should anyone be paying them anything more than a nominal record-keeping fee? As I said, oversimplified, but what a world we live in.
Well, some are arguing that the universal ownership of asset manager capitalism destroys the critiques of socialism made in the calculation debate and provide a proof of concept for a form of market socialism. https://www.peoplespolicyproject.org/2017/08/17/index-funds-are-a-proof-of-concept-for-market-socialism/
An interesting read on market socialism: https://www.currentaffairs.org/2018/10/innovation-under-socialism
The expense ratio charged by the biggest ETFs are extremely low. Vanguard charges 3 basis points for one share of VOO, its S&P 500 ETF (It replicates the S&P 500 index.) That's about $3 of fees for $10,000 of the ETF. This factoid argues for the dominance of fees in the business model.
Blackrock, however, does not own these assets. If you own IVV in your 401k, YOU own it. If Blackrock fails you will not lose your asset. A path to instability might exist in Blackrock's ability to lend shares out of ETF portfolios. I know that it engages in securities lending. (These comments fit for most ETF issuers.
Zizek argues this in "The Year of Dreaming† Dangerously"
you didnt simplify anything, if anything you overcomplicated it by calling a basic shift in economic structure the “dictatorship of the proletariat” for reasons i reckon you’d have to work out with a therapist over a number of sessions to realize
So given this rethink of capitalism as asset manager led de-risked capitalism, what does this imply for "inflation"? It used to be, pre-blackrock, share issuing public cos hated inflation. Clearly it's not quite the same reaction in this alternate universe?
I am not an economist and would also be interested to know whether AMC has had impact on inflation in recent times
I've been trying to figure out how the asset managers became market consolidators. It's legitimately bothered me. Thanks Adam. I subscribed immediately after following the cast of characters you introduced me to in your analysis.
I was recently asked by a friend from previous fossil fuel divestment campaigns about the rise of Engine No 1. I think it is essential to see the dynamics around divestment and ESG/engagement as related to the rise of asset manager capitalism.
These huge financial institutions hold the entire market; the entire market is threatened by climate change (whether you see this in financial terms or in terms of a balance of power between classes, OK, either way). This has worked for them so well that they are not likely to change. Exit is not how they exert control -- voice (including engagement) is. Divestment remains relevant for asset owners like institutional investors, pension funds etc. But their power relative to asset managers is on the wane.
It is important to see the divestment movement (and GND, I think, whose positivity capital needed to respond to) as generative of the ESG and engagement boom. These are ways that capitalism integrates and responds to the divestment critique. But just because of this dialectical movement does not mean we are moving "forward" -- capitalism is this resilient, we've learned -- and certainly not necessarily at the pace necessary to match climate change. So what next, then?
Perhaps here we can reflect on the ultimate limitations of divestment and its indexical value pointing to the ultimately political nature of climate action. Divestment characterized finance as a terrain for climate action; ESG and engagement render this critique technical, defanging it of the ultimately political nature of the critique. This is the split of "double materiality," by which business and finance increasingly refer to the business case for climate action, submerging their own effect on climate change within its effect on them. This rhetorical turn limits the political imagination of what is possible in climate action -- a dangerous game given the pace and scale at which we have to move to avoid runaway climate impacts.
If you were designing a "universal capitalist," it's true that an ETF manager is close to the ideal. Is this actor capable of what is necessary? On the one hand, they have power perhaps no one else does, and skin in the game -- but only their own. This is the climate Leviathan. https://haydenhiggins.medium.com/riding-the-leviathan-f512888ce08c
I noticed that you haven't actually told us why, or even whether, this is a bad thing. This article does not make the case for it either way.
That can be a good thing, no?
Thank you for shedding light on this important topic. Many people may find it too technical, but actually we should discuss it much more.
I also only understood the consequences for us here in Germany after watching "Germanomics" (highly recommended BTW, https://www.youtube.com/watch?v=J_bS8W-q4ik).
Since then the topic doesn't let me go, please more on this, Adam!