It’s Time We Talked About Our Owners

How vast asset managers impact “our increasingly cartelized economy.”

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

The world’s biggest asset manager, BlackRock, was splashed across the front pages of the Spanish financial news yesterday. The firm had just raised raised its stake in Spain’s telecoms giant Telefónica to 336 million shares — the equivalent of 6.7% of Telefónica’s total capital, with a market value of just under €3 billion.

In the short space of five months BlackRock has almost doubled its holdings and is now the largest owner of Telefónica stock, ahead of Spain’s second biggest bank, BBVA, which holds 6% of the shares. The asset manager has also expanded its participation in Telefónica’s international subsidiaries, raising its holdings in Telefónica Deutschland to 0.76% and Telefónica Brasil to almost 2%, making it the firm’s biggest institutional shareholder.

BlackRock is the largest institutional shareholder of Telefónica’s two main market rivals in Spain, holding 7.3% of Vodafone and 1.96% of part state-owned Orange. It’s also the second largest investor in British Telecom, after Deutsche Telekom, with a 7.84% stake. In the U.S. market BlackRock has the third largest position in Verizon, with 6.17% of the capital, and the second largest position in AT&T, with 5.84%.

A Vast, Sprawling Empire

The US fund manager has built up such a vast, sprawling financial empire since its creation 29 years ago that it has even begun to draw unwanted attention from the academic world. Two blockbuster studies – one by Einer Elhauge of Harvard Law School and the other by Martin C. Schmalz of Stephen M. Ross School of Business and José Azar and Isabel Tecu of Charles River Associates – have confirmed that BlackRock and some other big funds have acquired such large shareholdings throughout the U.S. and global economy that they cause the companies they jointly own to compete less vigorously with one another.

Elhauge’s study, “Horizontal Shareholding as an Antitrust Violation”:

In the banking industry, the top four shareholders of JP Morgan-Chase (BlackRock, Vanguard, Fidelity, and State Street) are also the top four shareholders of Bank of America and four of the top six shareholders of Citigroup, collectively holding 19.2% of JP Morgan-Chase, 16.9% of Bank of America, and 21.9% of Citigroup.

These same shareholders are also the top four shareholders of Apple (BlackRock, Vanguard, Fidelity and State Street) and four of the top five shareholders of Apple’s main rival, Microsoft.

The exact same ownership patterns occur across almost all industries — and not just in the US. Granted, most of the time it’s other people’s money that firms like Vanguard, Fidelity, and BlackRock are investing, but that’s not to say that they are impartial and disinterested.

As Vanguard puts it, they may be passive investors, but they are not passive owners. “We are an active voice,” BlackRock’s chairman and CEO, Laurence D. Fink, is fond of saying — a voice that is now heard in just about every boardroom of just about every major company on this planet.

It is also heard far beyond the boardroom. In August 2014 the European Central Bank hired BlackRock’s consultancy unit, BlackRock Solutions, to provide advice on the design and implementation of the central bank’s upcoming purchase of asset-backed securities. In other words, just before the ECB embarked on one of the biggest asset buying programs in world history, it sought the advice of the world’s largest asset manager – i.e. the company most invested in the assets it intended to buy.

A New Gilded Age

Recent years have seen an increasing focus on the gaping disparity in wealth distribution. As Oxfam reported last month, the situation has reached such bewildering extremes that eight men are now estimated to own more than the poorest half of the world population.

Much less attention, however, is paid to the growing concentration of financial ownership and its impact on financial markets and the distribution of wealth, income and influence. In 1950, institutional investors owned about 7% of the US stock market; today they own almost 70%. If you count them as a single investor, BlackRock, Vanguard and State Street are the largest owner of 88% of the companies in the Standard & Poor’s 500.

As Eric Posner, Fiona Scott Morton and Glen Weyl point out in the New York Times, control of the economy has not been this concentrated since the Gilded Age:

The problem is not just the size of the institutional investors, but the way they invest. Institutional investors often own stakes in all the competitors in concentrated industries. Vanguard alone, with more than $3.5 trillion in assets under management, owns the biggest or second-biggest stake in JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, U.S. Bancorp and PNC Bank. BlackRock, with more than $5 trillion in assets under management, also owns one of the three largest stakes in all these banks.

It’s already been shown that common ownership within the banking and airline industries in the US has resulted in large increases in bank fees and reductions in interest rates to savers as well as rising airline fares. As Posner, Scott Morton and Weyl contend, large institutional investors like BlackRock and Vanguard should be allowed to continue to offer retail investors the possibility of diversifying their assets across industries but prohibited from taking near-monopolistic positions within industries:

A fund owning United Airlines can diversify with holdings in Walgreens; it does not need to own Delta as well. Small institutional investors can diversify in any way they like. Our proposal would restore competition to our increasingly cartelized economy with a minimum of disruption for existing business practices.

Whether Trump’s team – filled with billionaires, Goldman Sachs alumni, and financiers – or other national governments will be inclined (or even able) to take such action is debatable. If they don’t, the concentration of ownership within national and global industries is set to grow, setting the stage for a new gilded age that promises to be even more insidious than the last one, since it will be global in scope and will almost certainly be facilitated by the international network of central banks. By Don Quijones.

And now they’ve come up with a new way to protect citizens from threats, as defined by these apparatchiks. Read…  Things Just Got Serious in Europe’s War on Cash

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  29 comments for “It’s Time We Talked About Our Owners

  1. We are 9 meals from anarchy ( basically three FULL days without food ). I read that long ago and it suck with me.

    We need a revolution — pitchforks and torches, or otherwise.

    People are too well-fed — and also too well entertained to revolt.



    • Frederick says:

      You’re spot on George Of course Wolf will disagree with you

      • OK

        Not to sound Dickensian, but this thought occurred itself to me as I was reading your reply to my post :

        How many people forge the chains of their own slavery ( or servitude if you prefer ) as they meander ( do I mean aimlessly here ? ) through life ?

        Many people I have known have willingly taken upon themselves the bonds of servitude.



        • Maximus Minimus says:

          Slaves of old mostly had to be captured in war. These modern slaves, sell themselves for cheap toys. Deterioration of the gene pool, I guess.

    • Intosh says:

      In other news, “Beyoncé’s pregnancy announcement is the most-liked Instagram post of all time”. With that bunch, we are nowhere near a whiff of a possibility of a revolution.

      “Panem et circenses”. The circus has never been more entertaining and the bread (or whatever passes as bread) is still quite plenty and affordable.

      There’s still a long long long way down.

  2. GT says:

    A partial solution to this problem would be for fund/asset managers to provide their shareholders with the opportunity to vote as shareholders (which they are) in the companies owned within the fund. Vanguard prides itself on being a client-owned fund company, however they don’t provide their “client owners” with the opportunity to vote as shareholders/proxy voters on resolutions, directors, etc. at shareholder meetings. Why not democratize fund ownership by making the funds and publicly owned companies directly accountable to the client owners? I realize the challenge of getting fund managers to give up their power is daunting, but some progress has been made in increasing transparency in how funds vote and greater transparency in voting, governance, and fee structure is sorely needed and a great place to start.

    • Quadra says:

      Like the SICAV structure in Europe where the share owners of the fund umbrella appoints directors at the AGM.
      Add technology where share owners could group since owners are generally to small to have any influence.
      Still though, I don’t think the average owner has time to get involved so I still think that larger owners (pension funds) should insist on strict rules and max compensation so these ETF stays a passive vehicles only.

  3. Tom Welsh says:

    Apparently we have a US administration that is even less interested in trust-busting than Teddy Roosevelt was. (He talked a good story but did little).

  4. mvojy says:

    This is clear evidence that the Illuminati own EVERYTHING

    • Nik says:

      Aloha Friend…There is a clear difference…Between Control and Ownership…lololol Since…you do not need to own 100% of something,to be 100% In CONTROL,True?

  5. Bruce Adlam says:

    I don’t beleave globalization will ever work as long as human nature is human nature. We don’t live in an ideal world and nor can we. As long as humans need a central figure head and power always curupts in the end. Globalization means the countries that produces the cheapest at what they are good at provide it. That’s great until something goes wrong. Just ask England during ww2. Never again she’ll we rely on someone else to feed us. That applies tod

    as much today as any day in history. History has a habit of repeating itself each time it’s getting more global in nature. Human nature being human nature it can only end badly unless we can escape earth and dont see that happening soon enough

    • david says:

      Bingo! You got it. The only capitalist society that works is a heavily regulated capitalist society with is an anathema to capitalists. In the USA that sort of government existed less than 100 years. By the 1860’s is was almost dead. By the 1900’s it was gone.

      • DH says:

        Yep, capitalism with a healthy dash of socialism is the way to go, but we’ve become so embroiled in polarization that I’m not sure we’ll find our way back.

        • d says:

          “Yep, capitalism with a healthy dash of socialism is the way to go,”


          There should be a social safety net, beyond that any socialist system simply gets milked by leftist, and the supporter they buy with it.

          Look at the huge American government.

          Socialist leaning State and Federal employees, moving papers, from desk to desk, to tick boxes, and keep their socialist fellow travels employed. Developing more and more regulation’s to employ more and more of their fellow travels.

          Then you get greece where the state is the biggest employer, and the politician’s must do what the state employees want, to get elected, and remain in power.

          The greek right, is far to the left of the center, in the rest of Europe.

          This is what to much socialism, in a pseudo capitalist system does.

    • Intosh says:

      As long as there is Greed, no *-ism will work. Greed is the ultimate evil. But sadly, it is tied to our own mortality. It is because people have a limited lifespan that they tend to become greedy, i.e. people want to enjoy as much as they can before they leave this world. We have no time for altruism. Greed corrupts and destabilizes everything. There is no “seven deadly sins” — there is only one; all others stem from that one.

      In an ideal world, we would have a hybrid system of mixed *-isms, continuously adjusting itself to keep a balance because humanity as a whole has shifting tendencies, it is never static.

  6. Petunia says:

    It looks like a play on the technology backbone. They are aiming to get control over a global segment of the internet. If you allow yourself to consider real estate as another basic utility, housing. It then becomes easier to see where this is all going. They are trying to capture the paychecks of the average worker or universal income recipient. You will pay your rent, cable, electric, and water bills to them. They own you.

    • And you are correct, “They own you.”

      I own my cat. Really I do . . . . although I am lucky she lets me live with her .

      I feed the cat, give it basic healthcare, give it a warm place to sleep, clean its litter box, and play with it.

      My cat would never think of revolting, and leaving me, to go out on its own.

      Pretty good metaphor — to me — for how and why they own us .


      • Bruce Adlam says:

        Thats long as the cat does what you want it to. God help the cat if it doesn’t. Like a bird it can’t fly if you flip it’s wings it’s not really free

      • John in Indy says:

        Of course the cat wouldn’t leave. You’re good staff. :-)
        John in Indy

    • Maximus Minimus says:

      Or just plain play for power: a shadow over the government if you will. The more power, the more wealth they can extract; the more wealth, the more power.

    • Intosh says:

      With a government that is unfavorable to net neutrality, combined with the war on cash, the technology backbone is a king-maker. The king will own all information on you.

  7. Quadra says:

    What about creating an ETF company with clear rules on voting, conflict of interest etc and that directly report to the Treasury or the SEC.
    Pay decent salaries and forbid any other incentives.
    Passive investment in Indeces is today only IT, not Investment Management.
    Most of the investors in them are only there to get exposure in the index (for a low fee) not to give any power to any specific company or person.
    Perhaps some Pension funds should insist on new rules in these questions in the ETFs

  8. ru82 says:

    Good article. I think this is a big problem. Wealth is being concentrated into a small portion of the population. They are using financial engineering to buy and buy more companies. You also have Berkshire Hathaway that is buying a lot of companies and becoming bigger and bigger. Then Warren Buffet tells congress that raising minimum wage will not help poor people but instead handing out tax credits to low income families is the right solution. Thus he keeps his profits and the tax payers split the bill on helping low income people.

    • d says:

      “Good article. I think this is a big problem. Wealth is being concentrated into a small portion of the population.”


      Wealth is being concentrated into a small group of Globalised Vampire Corporates.

      They have, and evolve their own cultures, the people who figurehead them, are only allowed to do so, as long a they conform, to the culture and plan, of the entity. Very much like the CCP.

      Japan is an excellent example of this.

      Every once in a while you get an “Outsider” come to a position of power in a Japanese entity. For a short period people will speak , possibly in opposition to the culture, or corporate/departmental direction. This will quickly be replaced by total conformity, either to the old or the slightly different new. Depending on the feedback from the “Outsider”

      Organizational culture is a newer science/discipline of study, and very interesting.

      One thing that comes from it, is than the only way to completely rectify bad culture, particularly in police forces or banks, is to replace them..

      Micro$oft has “Bad culture”.

      Since day one “MAKE THEM, NEED US”, “Dos is not done, until Lotus (lotus spread sheets). Will not run “. They did exactly the same thing in win 95 and 98, with AOL.

      The biggest threat to humanity and the planet today, is not Nuclear Weapons, or human accelerated climate change.

      It is these growing Globalised Vampire Corporates.

      As they are wedded to planetary unsustainable, business models.

    • c smith says:

      “Wealth is being concentrated into a small portion of the population.”
      How so? These “holdings” of Blackrock, Vanguard, etc. simply represent the holdings of INDEX FUNDS which have become so popular with average Americans. This doesn’t represent a concentration of wealth in any way at all. In fact, it represents a greater BREADTH of wealth holdings by the average investor. Now, the fact that the VOTING power associated with these holdings is concentrated at a few banks IS an issue. A system whereby the proxy power of these shares could be exercised by the actual owner (rather than the custodian) would help to solve the problem. We have the systems in place to do exactly that. Of course, the fact that average investors have no time nor inclination to understand or think about proxy issues creates a whole other problem. People don’t care. They just want to make money, and the “vote with their feet” by selling a stock. Index funds MUST hold all firms to be true to their charters. THAT is the core problem.

      • Smingles says:

        ““Wealth is being concentrated into a small portion of the population.”

        How so?”

        Did you really have to ask that? Look at… every statistic possible regarding wealth concentration. Eight people have more wealth than 50% of the world’s population.


  9. opalchip says:

    Well this is a problem when the central banks are creating “money” out of thin air and funneling the majority of it directly to their constituents, the banks and financial institutions. What do you expect them to do with all of their earnings? Keep cash in the bank? Return it to shareholders Hah! Fat chance! No they didn’t get where they are by giving “their” money away. So they have to buy real stuff. Former houses of the serfs that they can rent back to the serfs, farm land, oil properties, and equity stakes in other companies. Every day, my newsfeed is splattered with prints passing by saying “this or that institution” reports passive stake in “this or that company”. How long until the the tutes own it all, or there’s no more equity worth buying? (I’d say we’re mostly at that point now.).
    This (along with the Buyback scam featured here last week) is a big driver of our apparently value-blind bull market. And a factor in why “trickle down” isn’t working, and why the Fed can’t get inflation going as gangbusters as they’d like. If the new “wealth” got into the pockets of the top 20%, we would get some economic action. But when it all goes into the pockets of the top 1%, or .1%, really – well that group doesn’t need much new marginal stuff in the real economy. Will they buy 5 more cars, or a 6th Sub Zero fridge for the mancave in their 3rd vacation home? Eat 10 dinners out a week instead of 7? No, it all gets recycled into the asset bubble – which is disconnected from or detrimental to the other 99.9%.

    • Tom Kauser says:

      Every time a muscle car drives by I think of bonds and how sweet it sounds!

  10. Tom Kauser says:

    Fed has all the assets and the banks have their liabilities and you have your job feeding each!
    One with your future the other with your very distant future?
    Tomorrow we as a nation still have our paper and our pride of producing epic capital accumulators and everyone else too!
    Much respect.

Comments are closed.