The Monopoly Documentary: Vanguard and BlackRock “Rule the World”

The Financial Companies That Really Rule the World Competition Is an Illusion On the surface, free competition appears to have driven the rise and fall of American companies, large and small. Pepsi competes with Coca-Cola, Apple and Android compete for your loyalty, and pharmaceutical companies compete for your healthcare dollars. Yet all of this is an illusion. Since the mid-1970s, Vanguard, Inc. and BlackRock, Inc. have swallowed up most of the world’s companies, effectively destroying the competitive market on which America depends and leaving only a false appearance of competition. The well-known documentary filmmaker Tim Gielen made Monopoly: Who Owns the World?—referred to below as Monopoly—about this subject. The documentary shows that a very small number of large businesses—asset management companies—dominate every aspect of life. They are so enormous that they control the flow of money around the globe. ----- PepsiCo owns a long list of food, beverage, and snack brands. The same is true of Coca-Cola, Nestlé, General Mills, Kellogg’s, Unilever, Mars, Kraft Heinz, Mondelēz, Danone, and Associated British Foods. Together, these parent companies monopolize the food industry because nearly every available food brand belongs to one of them. That means whoever owns these companies controls humanity’s stomach. These companies are publicly traded and run by boards of directors, with the largest shareholders holding decision-making power. When you look at who those shareholders are, the same names keep appearing. Although major shareholders’ stakes change frequently, two companies consistently rank among these parents’ top institutional holders: the asset managers Vanguard and BlackRock. For example, PepsiCo has more than 3,000 major shareholders, but Vanguard and BlackRock hold nearly one-third of all its shares. Among PepsiCo’s top ten shareholders, the top three—Vanguard, BlackRock, and State Street Corporation—hold more shares than the other seven combined. Now look at PepsiCo’s biggest competitor, Coca-Cola. Its largest shareholder is Warren Buffett’s Berkshire Hathaway, but the next three names are familiar: Vanguard, BlackRock, and State Street. Vanguard, BlackRock, State Street, and Berkshire Hathaway are the world’s four largest asset management companies. “So PepsiCo and Coca-Cola are by no means competitors,” the documentary says. The same applies to other food companies. All these large businesses are owned by the same small group of institutional shareholders. These asset managers’ monopoly extends far beyond food into every industry. Take major technology companies: Meta, Facebook’s parent; Alphabet, Google’s parent; Apple; and Microsoft. These four companies arguably represent the world’s hardware and software technology. Facebook owns WhatsApp and Instagram. Alphabet owns Google and all its related businesses, including YouTube and Gmail, and is Android’s largest developer. Microsoft owns Windows and Xbox. These four parents control a very large share of the software used on the world’s computers, tablets, and smartphones. Who owns these four parent companies? Facebook—more than 80% of its shares are held by institutional investors. Its leading institutional holders closely resemble those in food: at the end of March 2021, Vanguard and BlackRock ranked first and second, and State Street was fifth. Apple—its top four institutional investors are Vanguard, BlackRock, Berkshire Hathaway, and State Street. Microsoft—its three largest institutional shareholders are Vanguard, BlackRock, and State Street. Alphabet—its three largest shareholders are Vanguard, BlackRock, and another asset manager, T. Rowe Price. Continue down the list of Western technology companies, whether they make computers, smartphones, electronics, or home appliances, and you repeatedly find Vanguard, BlackRock, Berkshire Hathaway, and State Street among the largest shareholders. The planes we fly on are usually made by Boeing or Airbus. Again, Vanguard and BlackRock are major shareholders in both. The same holds for agriculture, on which the global food industry depends, and for every other major industry. These institutional investors own Bayer, the world’s largest seed producer. They also own refineries, the largest solar-panel manufacturers, and businesses in the automotive, aircraft, and arms industries. They own major tobacco and pharmaceutical companies, as well as department stores and online marketplaces such as eBay and Amazon. In every sector of Western society, the leading shareholders and decision-makers are the same: Vanguard, BlackRock, State Street, and Berkshire Hathaway. These names, especially BlackRock and Vanguard, appear among the top ten institutional investors in almost every large company. Financial Super-Behemoths “We can compare them [institutional investors] to a pyramid,” Monopoly director Gielen says in the documentary. Smaller institutional investors, such as Citibank and T. Rowe Price, are owned by larger asset managers such as Northern Trust, Capital Group, 3G Capital, and KKR. Those investors, in turn, are owned by still larger asset managers, such as Goldman Sachs or Morgan. At the very top are Vanguard and BlackRock. In terms of scale, the three major asset managers—BlackRock, Vanguard, and State Street—currently manage more than $15 trillion in global assets, equivalent to three-quarters of US gross domestic product (GDP). “The power of these two companies is almost unimaginable,” Gielen says. “They are not only the largest institutional investors in every large company on Earth; they also hold shares in those companies’ other institutional investors.” BlackRock, in particular, is a super-behemoth. ● It currently holds stakes of 5% or more in over 97.5% of S&P 500 constituent companies. ● It operates a technology platform, Aladdin, containing trading and ownership information on approximately 10% of the world’s stocks and bonds. ● The Federal Reserve hired BlackRock to manage the government’s bond-purchasing program. Beyond their vast assets, the two firms have extraordinary influence. The New York Times is a leading Western media outlet. As of May 2021, BlackRock was its second-largest shareholder, with 7.43% of total shares, behind Vanguard’s 8.11%. Vanguard and BlackRock are also the two leading owners of Time Warner, Comcast, Disney, and News Corp. These six media companies control more than 90% of the American media landscape. Because of BlackRock’s close relationships with Western central banks, Bloomberg has called it “the fourth branch of government.” BlackRock actually lends to central banks and the Federal Reserve and serves as their principal adviser. Dozens of BlackRock employees have held senior White House positions in the Bush, Obama, and Biden administrations. BlackRock also developed computer systems used by central banks. After the 2008 financial crisis, the Obama administration selected BlackRock to clean up assets. It acquired toxic assets that the Federal Reserve was not legally permitted to buy. After COVID-19 broke out in the United States, the Trump administration appointed BlackRock as an independent organization to avert a fiscal crisis. It won a no-bid contract to manage a massive $454 billion fund, which it used to obtain more than $4 trillion in Federal Reserve credit. BlackRock senior adviser Wally Adeyemo is now deputy secretary of the US Treasury. Former BlackRock executive Brian Deese is Biden’s chief economic adviser, while former BlackRock executive Michael Pyle currently serves as Vice President Harris’s chief economic adviser. As Wealthy as Nations The University of Cambridge conducted an in-depth study of Vanguard and BlackRock’s dominance. Adding State Street, it called them the “Big Three.” “Asset management company” is a general term, usually referring to firms that manage investment funds for retail clients, institutions, or private investors. These companies’ most important invention is the index fund. The best known is the ETF index, invented by Morgan Stanley in 2000 and now held by BlackRock. The structure of index funds separates the decision-making power of the true shareholders—the asset owners—from the companies they own. This model is called “asset management.” Investing in these index products is passive investing. In the early 1930s, American economists Adolf Berle and Gardiner Means developed the concept of the “separation of ownership and control,” distinguishing management from shareholders. That model persisted until the end of the last century. In the late twentieth century, the emergence of index funds shifted the West from shareholder capitalism to investor capitalism. Since 2008, Western finance has undergone a major shift from active to passive investment strategies. BlackRock, Vanguard, and State Street dominate the passive index-fund industry. Together, these “Big Three” have become the largest shareholders in 88% of S&P 500 companies. The financial Big Three’s rise over the past decade marks a fundamental change in financial capitalism. Unlike active funds, most passive index funds invest by buying shares in the companies belonging to a specified index. This has brought enormous changes to corporate management structures. There are signs that the Big Three are beginning to exercise influence actively over companies in which they hold shares. As Vanguard chairman and CEO Frederick William McNabb III puts it: “In the past, some people believed our predominant management style implied a passive approach to corporate governance. That is incorrect.” Similarly, in a letter to the CEOs of all S&P 500 companies, BlackRock founder, CEO, and chairman Larry Fink asked them to stay in contact with long-term providers of capital—meaning himself. Although all three are passive asset managers, their corporate governance structures differ greatly. BlackRock is the largest of the Big Three and the world’s largest asset manager. As of September 30, 2021, it managed approximately $9.5 trillion globally. By comparison, Japan, the world’s third-largest economy, had GDP of $5.058 trillion in 2020. BlackRock is publicly listed and therefore faces pressure to maximize profits for shareholders. As of January 31, 2021, Vanguard managed $7.2 trillion worldwide—also far more than Japan’s 2020 GDP—and was the fastest-growing of the Big Three. In 2015, it attracted $236 billion, the largest annual inflow to an asset manager ever recorded. Vanguard’s rapid growth is mainly attributable to its not being publicly listed and thus facing no pressure to generate profits. Its fee structure is the lowest in the asset management industry. State Street is somewhat smaller than BlackRock and Vanguard, but remains one of the world’s largest asset managers. The recent rise of the financial Big Three has raised serious concerns that it is “bad for capitalism.” The first and principal concern is that further growth in passive index funds’ market share could weaken the stock market’s role, as the proportion of actively traded shares continues to shrink. A second concern about rising risk relates to securities lending. Passive asset managers regularly lend shares to short sellers to generate additional income. This seems unproblematic during economic booms, but could significantly weaken liquidity under severe market stress. Taken together, these three passive asset managers have become the largest shareholders in at least 40% of US-listed companies and 88% of S&P 500 companies. Through their corporate governance activities, the Big Three can therefore be seen as a de facto standing board for more than 40% of American listed companies. What consequences might the financial Big Three’s unprecedented monopoly position bring? Some economists already believe this concentration of shareholder power could adversely affect competition. Consider aviation. Over the past decade, many American industries, from airlines to banking, have come to be dominated by a handful of companies. The Big Three are effectively the largest shareholders in the few competitors within these industries. This is the case for American Airlines, Delta Air Lines, and United Continental, as well as JPMorgan Chase, Wells Fargo, Bank of America, and Citigroup. All belong to the S&P 500, the index in which most people invest. Their CEOs may be well aware that the Big Three are major shareholders and take this into account in decision-making. One could therefore argue that airlines have less incentive to cut prices, because doing so would reduce the overall returns to their common owners, the Big Three. In this way, the Big Three may be exerting an emerging form of “structural power” over much of corporate America, controlling entire industries. Despite the concerns, more and more money is currently flowing to these firms. For ordinary investors, this is the least risky investment model. Bloomberg data suggest that, by 2028, Vanguard and BlackRock are expected to manage investments worth a combined $20 trillion—roughly matching US GDP in 2020, at $20.89 trillion. #看天下202135 (Vista, 2021, issue 35) #特約主筆陳勁松 (Contributing writer: Chen Jinsong)