Within the world of corporate governance, there has hardly been a more important recent development than the rise of the ‘Big Three’ asset managers—Vanguard, State Street Global Advisors, and BlackRock. Due to the popularity of index funds and ETFs, these asset managers now represent some of the largest owners of US public companies. And because of their size and corporate governance influence, a robust scholarly literature has identified the promises and perils of Big Three ownership. In a new book chapter, we identify a series of proxies, or shorthand terms, that first appeared in the foundational works in this literature and have become commonplace in both scholarly articles and the financial press. We further show how this shorthand can contribute to misperceptions and confusion.
The first shorthand is the use of the term ‘Big Three’ to refer to three distinct asset managers. Each of the Big Three manage vast amounts of money in indexed products—amounts that have grown dramatically thanks to the rising popularity of index-based investing. However, there are important differences between each asset manager, both in terms of the composition of the assets they manage and their own institutional structure and operations (and our chapter describes these differences in detail). As such, it does not always make sense to lump these institutions together. The focus on these three institutions has also limited scholarly focus in important ways. For example, the term excludes Fidelity, even though it is larger than State Street in terms of AUM and has also benefitted from a steady inflow of investor funds over the past several years.
The second shorthand is to equate the Big Three with ‘passive’ funds. This misperception is widespread, with many papers—including prior work by one of us—studying the Big Three’s governance practices to better understand the incentives of passive fund managers. Although this shorthand can be useful under certain circ*mstances, we show that it has important limitations. After all, each of the Big Three also manage large amounts of active money, and the index funds that they offer are themselves far from hom*ogenous.
This brings us to the final shorthand—the idea that ‘index funds’ are all passive and interchangeable. We explore the limitations of this shorthand by showing that the concept of ‘passive investing’ is undertheorized, and that there is ample diversity across index funds. In other words, just as there are closet indexers, or active funds that are really quite ‘passive,’ index funds vary dramatically in terms of the discretion that is awarded to—and used by—portfolio managers, the fees that are levied, and the trading strategy that is used. As such, the active/passive dichotomy that is used both by scholars and portfolio managers to market their mutual funds obscures important features of this market.
The final section of our chapter discusses the implications of these observations for future scholarship. Taken together, they shed light on conversations about how the rise of ‘passive’ investing affects corporate governance. Beyond scholarly relevance, these observations matter for policymakers seeking to respond to these market developments with legislative action. For example, the INDEX Act, a bill recently introduced in the Senate, would require investment advisers to pass through the votes of ‘passively managed funds,’ defined as any fund that tracks an index or discloses that it is a passive fund or index fund. As we show, this definition sweeps ‘closet active’ funds under its umbrella.
Our analysis also sheds light on other pressing corporate governance conversations, and in particular, those about the growth and appropriate role of large asset managers. We chart these implications in further detail and highlight questions for future research.
Dorothy Lund is Associate Professor of Law at USC Gould School of Law.
Adriana Z. Robertson is the Donald N. Pritzker Professor of Business Law at the University of Chicago Law School.
This post is part of an OBLB series on Board-Shareholder Dialogue. The introductory post of the series is available here. Other posts in the series can be accessed fromthe OBLB series page.
FAQs
Along with BlackRock and State Street, Vanguard is considered to be one of the Big Three index fund managers that play a dominant role in corporate America.
What are the big three index companies? ›
The rise of index funds has provided millions of Americans with a cheaper and more efficient way to invest. With more than $23 trillion in assets between them, BlackRock Inc., Vanguard Group Inc. and State Street Corp. have become the top shareholders in many US-listed companies.
What are the big 3 assets? ›
The three largest index fund managers—BlackRock, Inc. (“BlackRock”); State Street Global Advisors, a division of State Street Corporation (“SSGA”); and the Vanguard Group (“Vanguard”)—collectively known as the “Big Three,” own an increasingly large proportion of American public companies.
What are the big three investment funds? ›
This Article examines the large, steady, and continuing growth of the Big Three index fund managers—BlackRock, Vanguard, and State Street Global Advisors.
Who are the big 3 BlackRock? ›
The “Big Three” institutional investors, BlackRock, State Street Global Advisors and Vanguard, have significant influence on the environmental, social and governance (ESG) policies and related disclosure for public companies.
How much do the big three own? ›
Prior research has established that the Big Three combined own an average of 20.5% of outstanding shares for S&P 500 companies, with Vanguard owning 8.8%, BlackRock owning 7.1%, and State Street owning 4.6% of such shares.
Who are the big three passive investors? ›
This burgeoning passive index fund industry is dominated by BlackRock, Vanguard, and State Street, which we call the 'Big Three'.
What is the most successful stock index? ›
The S&P 500—the Standard & Poor's 500 Index—is considered to be one of the best measures of U.S. stock market performance, tracking 500 of the largest and most stable publicly traded companies in the country.
What is the most successful index? ›
The most popular index funds track the S&P 500, which includes 500 of the top companies in leading industries of the U.S. economy. Other common benchmarks include the Russell 2000, Dow Jones Industrial Average (DJIA), Nasdaq 100, MSCI EAFE Index, and the Wilshire 5000 Total Market Index.
Who owns BlackRock? ›
BlackRock's largest institutional shareholders are Vanguard Group, BlackRock Fund Advisors, State Street Global Advisors, Temasek Holdings, and Bank of America. The company's largest individual shareholders include original BlackRock owners and founders Larry Fink and Susan L. Wagner, Robert S.
Your three greatest assets are your time, your mind, and your network. Each day your objective is to protect your time, grow your mind, and nurture your network.
Does BlackRock have voting power? ›
BlackRock can then use its proxy voting infrastructure to cast votes based on the client's selected voting policy. Clients have the choice to rely on BlackRock Investment Stewardship for all of their voting decisions.
What is the Lazy 3 fund portfolio? ›
Three-fund lazy portfolios
These usually consist of three equal parts of bonds (total bond market or TIPS), total US market and total international market.
What is a 3 fund portfolio for retirees? ›
With the three-fund approach, you allocate a certain percentage of your portfolio to one of three asset types: U.S. stocks, international stocks, and bonds. Older investors, including those near or in retirement, tend to prioritize capital preservation.
What is the 3 portfolio rule? ›
The three-fund portfolio consists of a total stock market index fund, a total international stock index fund, and a total bond market fund. Asset allocation between those three funds is up to the investor based on their age and risk tolerance.
What are the biggest asset management companies? ›
Largest companies
| Rank | Firm/company | Country |
|---|
| 1 | BlackRock | United States |
| 2 | Vanguard Group | United States |
| 3 | UBS | Switzerland |
| 4 | Fidelity Investments | United States |
16 more rowsThe top 5 of asset managers included in this ranking are BlackRock, 9,464 US$b, (They hit 10tn AUM as per December 2021), Vanguard, with 8,400 US$b, UBS Group, one of two European Asset Managers who made the Top 10 with 4,432 US$b, Fidelity with 4,230 US$b, and State Street Global Advisors with 3,860 US$b.
Who is the biggest asset manager in the world? ›
The ranking of the top 10 global managers was almost unchanged from last year. BlackRock retained the top spot with €7.1trn of AUM, with Vanguard, Fidelity, SSGA, Capital Group and JPMAM also keeping their positions.
