The Specter of the Giant Three

The Specter of the Giant Three

Lucian Bebchuk, Scott Hirst

Series number :

Serial Number: 
608/2019

Date posted :

May 31 2019

Last revised :

July 30 2019
SSRN Share

Keywords

  • index funds • 
  • passive investing • 
  • institutional investors • 
  • ETFs • 
  • Big Three • 
  • stewardship • 
  • engagement • 
  • shareholder activism • 
  • corporate voting • 
  • ownership concentration

This Article examines the large, steady, and continuing growth of the Big Three index fund managers—BlackRock, Vanguard, and State Street Global Advisors.

We show that there is a real prospect that index funds will continue to grow, and that voting in most significant public companies will come to be dominated by the future “Giant Three.”
We begin by analyzing the drivers of the rise of the Big Three, including the structural factors that are leading to the heavy concentration of the index funds sector. We then provide empirical evidence about the past growth and current status of the Big Three, and their likely growth into the Giant Three. Among other things, 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 extrapolate from past trends to estimate the future growth of the Big Three. 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 identify and document in other work.

Published in

Published in: 
Publication Title: 
Boston University Law Review, Volume 99, 2019, Forthcoming

Authors

Prof.
Real name:
Scott Hirst
Boston University School of Law