Break Up the ESG Investing Giants
BlackRock, Vanguard and State Street effectively control each other—and their market competitors. The Clayton Act was made for situations like this.
Dan Morenoff, August 31, 2022
Three of the largest investment shops in the U.S.—BlackRock, Vanguard and State Street—have long used their dominance in passive-investment funds to force corporations to comply with their preferred set of environmental, social and governance policies. Their reign, however, may be nearing its rightful end, as America’s law enforcers are waking up to the threats the Big Three pose to investors and the economy.
In an Aug. 4 letter to BlackRock CEO Larry Fink, 19 state attorneys general questioned how the company’s ESG advocacy squares with its fiduciary duties to investors. The attorneys general specifically raised whether BlackRock’s “coordinated conduct with other financial institutions”—i.e., the two other investing giants—to demonetize the oil-and-gas industry raises potential antitrust issues.
The attorneys general are digging into an important matter, but there is a much more worrying question they must explore: Why are the Big Three pursuing these policies in lockstep? Why have no institutions in the financial-services industry except one—the recently launched Strive Asset Management—opted to place the investor first, by giving priority to profit over social issues? The seeming answer raises concerns far beyond the Big Three’s anti-oil-and-gas collusion.
Through their management of passive investments, the Big Three collectively hold the largest voting blocs for nearly the entire S&P 500. Among them, they control a predominant share of the exchange-traded fund, or ETF, market, and of most participants in nearly every other market. Two of the three (BlackRock and State Street) are publicly traded companies, and so their officers disclose under oath in regular federal filings their institutional shareholders. In this paperwork, they regularly tell us not only what they own, but who owns them.
The answer reads like a punch line: The Big Three own each other and themselves.