The power of twelve
Earlier this year, Charlie Munger, the famously irascible billionaire vice-chair of Berkshire Hathaway, turned his ire towards a phenomenon his partner Warren Buffett has frequently praised.
“We have a new bunch of emperors, and they’re the people who vote the shares in the index funds,” Munger said at the annual meeting of Daily Journal Corp. “I think the world of Larry Fink, but I’m not sure I want him to be my emperor.”
Munger’s words reflect an increasing concern among some investors, corporate executives, regulators, policymakers and politicians, writes FT Alphaville editor Robin Wigglesworth.
Academics have even coined the term “asset manager capitalism” to describe the new reality of a financial system now dominated by money managers rather than banks. This is a phenomenon that is only going to grow more pronounced.
Some think that the end result of the current passive investing trend in asset management is that just a dozen or so people could end up enjoying de facto control over most public companies in the US — and even perhaps the world.
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That was the provocative argument of John Coates, a professor at Harvard Law School, in an incendiary 2018 paper titled The Problem of Twelve.
The benefits of scale in asset management, and passive investing specifically, are clear.
And last year once again the big became even bigger. At the end of 2021, Vanguard, BlackRock and State Street, the three biggest index fund providers, together controlled on average 18.7 per cent of S&P 500 companies, according to Lazard.
Their ownership of smaller companies is even more concentrated. By the end of last year, they held 22.8 per cent of shares in the midsized S&P 400 index, and 28.2 per cent of the small-company S&P 600 benchmark.
With this in mind, FT Alphaville has drawn up an informal list of who it thinks are currently. The 12 most powerful people in the investment industry — and thereforethe financial world. Some are obvious, while others wield more subtle influence.
Read the full list here.
Private equity chiefs fear waking up with a ‘terrible hangover’
A group of top financiers sat in Berlin seven months ago marvelling at how much money they had made during a global health emergency.
As they gathered again this week at the latest instalment of the private equity industry’s SuperReturn conference, the backdrop was fundamentally different, writes private equity correspondent Kaye Wiggins in this report.
The massive government stimulus packages and central bank crisis measures that had enabled them to keep companies afloat — and use cheap debt to strike new deals and pay themselves dividends — are a thing of the past.
“This is a time of reckoning for our industry,” said Philipp Freise, the European private equity co-head at KKR, which went on an aggressive dealmaking spree during the pandemic-era boom.
The Federal Reserve and Bank of England both raised rates while the dealmakers were gathering. Listed buyout groups’ share prices have tumbled this year. Investors are struggling to commit cash to new buyout funds— because
buyout groups raced to bring in fresh money from them last year — and the falling value of their stock market investments has left them over-allocated to private markets.
The enormous flood of deals struck at high valuations during the boom of the past two years are at risk of turning into what at least four senior dealmakers privately referred to as a “bad vintage” —
the private equity industry’s wine-driven euphemism of choice, which means pension funds and other investors would make less money than they hoped when they committed cash to buyout groups’ funds. Sourch - Financial Times