The Specter of the Giant Three

The world’s largest three investment managers—BlackRock, Vanguard, and State Street Global Advisors—control a large, and steadily growing, proportion of corporate equity. Our paper, The Specter of the Giant Three, shows that there is a real prospect that these “Big Three” investment managers will continue to grow, and that voting in most significant public companies will come to be dominated by the future “Giant Three.”

Our paper analyzes the drivers of the rise of the Big Three. These include the structural factors that have led to the heavy concentration of the index funds sector, which is dominated by the Big Three. We then provide empirical evidence about the past growth and current status of the Big Three, and their likely growth into the Giant Three. We document that the Big Three have almost quadrupled their collective ownership stake in S&P 500 companies over the past two decades; that they have captured the overwhelming majority of the inflows into the asset management industry over the past decade; that each of them now manages 5% or more of the shares in a vast number of public companies; and that they collectively cast an average of about 25% of the votes at S&P 500 companies.

We then proceed to examine the future growth of the Big Three by extrapolating from past trend. We estimate that the Big Three could well cast as much as 40% of the votes in S&P 500 companies within two decades. Policymakers and others must recognize—and must take seriously—the prospect of a Giant Three scenario. The plausibility of this scenario exacerbates concerns about the problems with index fund incentives that we have identified and documented in other work, including Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy; and The Agency Problems of Institutional Investors (with Alma Cohen).