BlackRock And Vanguard Are Owning The World- Is There An Urgent Need To Stop Them?

BlackRock and Vanguard have become the world’s largest asset managers, owning together more than R309 trillion in Assets Under Management (AUM), with investments in the majority of the globe’s top companies. For the purpose of putting their AUM in context, it is forty times greater than South Africa’s GDP.

A group of financial managers created BlackRock in 1988. The firm got listed in the New York Stock Exchange in 1999 at a price of $14 a share. By then, the corporation had already managed $165 billion, which was almost R990 billion at that point in time. Since then, BlackRock has had phenomenal expansion, amassing an AUM of $8.6 trillion (R160 trillion).

Bloomberg refers to BlackRock as the fourth pillar of government given that it is the sole private organization which collaborates intimately with central banks. These businesses were correct of the Federal Reserve, which assisted with clearing the mess during the 2008 housing crisis. AUM at BlackRock and Vanguard in 2022 is $8.6 trillion and $8.1 trillion, correspondingly. They have either owned or invested in 1,600 firms in the United States.

Global Financial Markets

For several decades, BlackRock’s hidden weapon, an innovative trading algorithm known as Aladdin, has shaped international markets. Fink and many colleagues founded the enormous technology initiative, which is estimated to manage a little over $21.6 trillion in assets. The Asset, Liability, Debt, and Derivative Investment Network (Aladdin) is an abbreviation for a software that conducts approximately of 250,000 deals each day.

Aladdin performs deals in each asset class and sector and guides the Federal Reserve and nearly each significant U.S. bank. It has a stake in more than half of the total ETFs, 17% in the bond market, as well as 10% in the stock sector. In order to determine what trades to execute, it gathers data points on each market, every firm, as well as every asset.

Aladdin is a collection of over 5,000 supercomputers that serves as the brain of the most knowledgeable asset managers as well as investors in the world today. The fact that each significant bank and fund now relies on Aladdin and even its all-knowing AI to outperform the market raises some important issues regarding the dynamics of our precarious financial system.  Aladdin was contacted by each substantial bank, the chairman of the Federal Reserve, along with the U.S. Treasury when the worldwide financial crisis began.

Fink announced Monarch, a new initiative at BlackRock in 2017, that replaced several of the firm’s managers of funds by algorithms. As reported by some media outlet, robots now perform over seventy per cent of all stock exchange deals in the United States.

BlackRock‘s along with its all-powerful algorithm’s effect cannot be adequately emphasized.  As of 2021, a minimum of three BlackRock executives hold significant roles in President Joe Biden’s cabinet. Biden named BlackRock executive Brian Deese as the director of the National Economic Council, while Adewale Adeyemo, previously the chief of staff to BlackRock’s CEO, became the Treasury Department’s senior official.

Food industry

Take, for instance, PepsiCo, where 3,155 institutional investors hold 72% of the shares. The top ten investors have a combined worth of $59 billion, although only BlackRock, Vanguard, and State Street possess more shares than the remaining seven.

Vanguard Group is the biggest stakeholder in PepsiCo, owning 9.29% of the company. Furthermore 7.84% in BlackRock. Vanguard and BlackRock had 8.51% and 7.19% stakes in Coco-Cola, correspondingly. The same collection of investors also owns Unilever, Mondelez as well as Nestlé, General Mills, The Hershey Company, Kraft Heinz, along with many other large corporations.

Technical Industry

BlackRock, Vanguard, as well as State Street possess a larger percentage of Alphabet, Apple, Microsoft, IBM, Facebook, AT&T, and other companies than the rest of the institutional investors. As a result, they have an advantage in terms of being the first mover.

Energy Industry

BlackRock has made investments of $170 billion in public energy firms in the United States until 2021, with $85 billion invested exclusively in coal companies. BlackRock, State Street, as well as Vanguard have $46 billion in loan and ownership in Amazon rainforest oil firms.

BlackRock as well as Vanguard own 19% of Philips 66, 21% of Valero Energy, and 16% of ExxonMobil, accordingly, as well as numerous other major corporations like as ConocoPhillips, Occidental Petrol, Chevron Corporation, as well as GE. These corporations’ money managers have roughly $260 billion investments in fossil fuel industries throughout the globe.

Pharma and Health Industry

Vanguard is the biggest stakeholder in Johnson & Johnson, holding 8.89%, and Merck & Co, holding 8.95%. AbbVie has 8.97%, CVS Health has 10%, United Health Group has 9%, Sun Pharma has 9%, and GlaxoSmithKline has 9%. Later on, BlackRock will be the second-biggest shareholder in these as well as additional firms.

Digital Media

To unilaterally sway the flow of partisan information, a total of four of the six media firms that dominate over ninety percent of the American media landscape—Time Warner, Comcast, Disney, and News Corp.—which are owned by the top two financial institutions, Vanguard as well as BlackRock. Collectively, BlackRock and Vanguard control 18% of Fox, 16% of CBS, 13% of Comcast, which operates NBC, MSNBC, CNBC, and The Sky media company, 12% of CNN, as well as 12% of Disney, that has an assortment of subsidiaries. Comcast also owns NBC, MSNBC, and CNBC.

They also control Sonoma, which is the parent company of major commercial Dutch channels, in addition to the numerous newspapers and periodicals. The DPG media is also the owner of a large number of foreign media properties, including VTM. Additionally, they control Mediahuis, one of Europe’s largest media companies, which employs its subsidiaries throughout the Netherlands.

In addition, it controls the German conglomerate “Bertelsmann,” that counts as one of the top nine media companies. RTL, which owns 45 television stations as well as 32 radio stations in eleven nations, is owned by this firm. Bertelsmann additionally serves as the joint owner of Penguin Random House, the world’s largest book publisher.

Tourism industry                                                                   

Vanguard and BlackRock jointly control 21% of Expedia Group, 15% of Bookings Holdings, 27% of American Express, 13% of Boeing, 10% of Airbnb, 16% of TripAdvisor, as well as many other companies.

Takeovers

Both companies have devoured an extensive number of competitors along the way. To date, BlackRock has bought 21 companies. Aperio was bought for around $1 billion in currency in 2020. In 2019, BlackRock paid $1.3 billion for eFront. BlackRock purchased Barclays Global Investors in 2009, including Barclays’ iShares ETF division. In addition, the company purchased Merrill Lynch Investment Managers.

NGO’s

In accordance with the World Economic Forum’s website, the Gates Foundation is the WHO’s largest supporter. That occurred after Donald Trump withdrew the United States’ financial funding for the WHO in 2020. The Gates Foundation collaborates extensively with the world’s largest pharmaceutical corporations, including Pfizer, AstraZeneca, Johnson & Johnson, Bayer, and others.

Additionally, we have just learned who their biggest stockholders are: Microsoft and Berkshire Hathaway. Vanguard, BlackRock, as well as State Street Corporation hold Hathaway. Morever, even Bill Gates serves on the boards of such organizations. These companies have been connected in a loop. Creating a link between corporations, legislators, and the media, as well as lowering corporate taxes by channelling income to non-profit groups. This helps to mask the conflicts of interest.

According to data, the two businesses have significant first-mover advantages in all major enterprises across several industries. In turn, they are held by shareholders, and perhaps most surprisingly, they own each other’s equities (Black Rock owns 14.5% of Vanguard Group, while Vanguard owns 9% of Black Rock).

Together with each other, they create a massive network resembling a pyramid. Bigger investors control the smaller investors. The visible peak of this pyramid has only two corporations whose names we’ve all heard before. Vanguard and BlackRock are their names. The combined strength of these two businesses is unfathomable.

Can BlackRock and Vanguard harm the economy?

Monopoly and oligopoly are wreaking havoc on the American economy. Americans may conduct business with only a few corporations in various areas, from airlines to online marketing to health care to banking to mobile phone carriers. According to the journalist David Dayen, increased market concentration lowers customer options, hikes costs, and most certainly damages employees.

BlackRock, Vanguard, as well as State Street have been immensely beneficial to investors, with their index funds lowering costs and improving yields for hundreds of thousands of individuals. However, their ascent has come at the expense of severe dominance of corporate ownership, which has the possibility to amplify the oligopolistic consequences of existing oligopolistic sectors.

According to John Coates, a Harvard Law School professor, the rise of indexation as well as the Big Three suggests that in the years to come, twelve individuals at investment companies would wield authority over the majority of American corporations. What transpires when a handful of individuals have so much power?

In accordance to researchers, this amount of concentration reduces firms’ motivation for competing with each other. This seems to make intuitive sense: In this regard, considering Vanguard is the biggest stakeholder among both Ford as well as General Motors, how would rivalry between the two help Vanguard? Why battle so hard on pricing, innovations, as well as investments if each business is controlled by the exact same small group of individuals?

It is true that there has been proof suggesting their concentrated control is related with reduced employment and salary levels, as well as price rises in various areas, involving as airlines, medicines, and consumer products. The companies disagree. Vanguard experts stated in a 2019 article that after studying several sectors over a long period of time, they could not discover conclusive proof that common ownership contributed to increased earnings.

However, if the Big Three continue to expand, the consequences of their concentrated ownership are going to get worse. According to Einer Elhauge of Harvard Law School, concentrated ownership constitutes the biggest anti-competitive risk facing our time, primarily since it represents the primary anti-competitive concern that we have done nothing about in general.

Ramaswamy believes his new organization, Strive, will compete to restrict the Big Three’s authority. If Strive draws in sufficient investors to have a say regarding the way enterprises are run — a big “if,” given that Ramaswamy has indicated that Strive has raised just around twenty million dollars when compared to the trillions handled through the Big Three — Ramaswamy states that he is going to advocate for businesses to concentrate on “excellence” as opposed to getting involved in contentious political issues.

John C. Bogle, the pioneering creator of Vanguard who created the first index fund for private investors, released an astounding piece in The Wall Street Journal at the end of 2018, a couple of months prior to his death, analysing the influence of his entire professional life. The index fund had transformed Wall Street, but what would happen if it became “too successful for its own good?” he thought.

Bogle highlighted that financial asset handling is a business of scale – the more cash BlackRock, Vanguard, or State Street oversees, the lower the fees it can charge investors. This renders a challenge for new firms to make their way into the market, implying that the Big Three’s market dominance is likely to continue. “I do not believe that such concentration would serve the national interest,” stated Bogle.

Bogle provided numerous solutions for reducing their influence, but he saw flaws in several of them. Index funds, for instance, might be prohibited by authorities from owning big interests in a number of companies in a particular industry. However how could they create an index fund, which is among the most prominent types of funds, that invests in all firms in the S&P 500?

Harvard’s Coates contends that governments must tread cautiously in order to regulate the hazards of concentration without reducing the advantages of these businesses’ low-cost funds to investors. “No doubt, getting the balance right will require judgment and experimentation,” he added. The most important concern, however, is that we acknowledge the situation. The rising clout of three huge fund managers is unlikely to slow down.

How much power can these two companies amass before we conclude that it’s too much?