Three firms vote a fifth of the stock market
Index funds made investing cheap. They also concentrated shareholder votes in three asset managers.
By The Ledger · · 2 min read
Roughly a fifth of the votes at big listed companies are now cast by three asset managers. Nobody elected them, nobody pays them for the votes, and the arrangement is a side effect of the best deal retail investing ever got.
What actually happened
Index funds won for a plain reason: they charge close to nothing. A passive fund tracking a broad market index costs a few hundredths of a percent a year, against about one percent for the average active manager. Compounded over a working life, that difference is the price of a house.
The money followed the price. Passive vehicles now hold around half of publicly listed equity in the largest markets, and the industry that sells them is astonishingly concentrated: three firms account for most of it.
Who pays, who gains
The saver gains, measurably. The cost sits somewhere less visible: corporate governance. When one firm votes at nearly every listed company at once, an annual meeting stops being a contest. Fund managers call it stewardship; a growing group of economists calls it common ownership and asks what happens to competition when every airline, every bank and every grocer reports to the same three shareholders.
The mechanism
The vote concentration is structural, not a plot. An index fund cannot sell a company it dislikes — the index is the mandate — so its only lever is the vote itself. That makes the voting desk of a large passive manager one of the most quietly powerful offices in finance, and it is staffed like a back office.
The reform on the table is pass-through voting: letting the fund's actual savers cast the votes their shares represent. The pilots so far reach only a sliver of assets, and participation runs low — most savers, reasonably, do not want homework with their pension.
What happens next
Fees cannot fall much further; the price war is essentially over. The next competition is for the vote, and it will be fought slowly, in proxy seasons rather than headlines. Until then the arithmetic stands: the cheapest product in finance carries the most concentrated franchise in it, and the saver pays for the discount with a proxy card signed over by default.