TITLE: These 3 Fund Families Control 74% of the Market
https://money.usnews.com/investing/articles/these-3-fund-families-control-74-of-the-market
EXCERPT: Funds can either be actively or passively managed. Active fund managers typically attempt to outperform the overall stock market by implementing some form of unique trading strategy. Passive fund managers aren't trying to outperform the market and are instead aiming simply to replicate its performance. Passive investing funds typically charge lower fees than active funds.
Unfortunately, the majority of active equity funds have consistently underperformed the S&P 500, a phenomenon which has driven more and more investors to passive funds.
The kings of passive investing are – you guessed it – Vanguard, BlackRock and State Street. More than likely, most retirement accounts are filled with funds managed by these three asset managers.
A 2019 study by Harvard Business Review found either Vanguard, BlackRock or State Street is the largest listed owner of 88% of S&P 500 companies. For example, the largest S&P 500 company by market capitalization is Microsoft Corp. (MSFT), with a more than $3 trillion valuation. A quick glance at Microsoft's largest institutional investors reveals some not-so-surprising results. Microsoft's top three largest investors are Vanguard, with an 8.9% stake, followed by BlackRock, at 7.3%, and State Street, at 4%.
A quick check of the top investors in Apple Inc. (AAPL), Nvidia Corp. (NVDA), Alphabet Inc. (GOOG, GOOGL) or any other trillion-dollar U.S. stock would yield similar results. However, the key to understanding the difference between legitimate concerns about the influence of the big three fund managers and the conspiratorial aspect of their critics lies with the use of the word "ownership."
As asset managers, Vanguard, BlackRock and State Street buy stocks on behalf of their funds' investors, not themselves. BlackRock may be the one buying all the Microsoft stock, but the company doesn't actually own most of those shares. It simply manages them.
This subtle but important difference is highlighted in the wide disparity between BlackRock's assets under management (AUM) and its market capitalization. As of the first quarter of 2024, BlackRock's AUM, the total market value of the investments it manages, was a mind-boggling $10.5 trillion. At the same time, BlackRock is a public company itself with stock that trades on the New York Stock Exchange. BlackRock's market cap, or the total dollar amount of all the company's stock, is about $118 billion. While that's certainly a large number, it's nowhere close to the $10.5 trillion in investor-owned stock that it manages but does not own.
Fund managers profit from the management fees they charge investors who buy and hold their mutual funds and ETFs in their investing and retirement accounts. When Microsoft's stock price goes up, BlackRock doesn't benefit directly from those gains because BlackRock doesn't actually own most of the Microsoft stock it manages.
The big three fund managers may not "own" the majority of the American economy, but they certainly "control" the vast majority of the passive fund market. As of February 2024, ETF.com estimates Vanguard funds represent 30.1% of the total equity ETF market while BlackRock accounts for another 29.4%. State Street is a distant third, with a 14.8% share. In other words, the big three's funds account for a combined 74.3% of the entire equity ETF market.
For Vanguard, the company's largest ETFs include its Vanguard S&P 500 ETF (VOO), which tracks the S&P 500, and its Vanguard Total Stock Market ETF (VTI), which tracks the entire U.S. equity market. The VOO fund has an AUM of $444 billion, and the VTI fund has an AUM of $390 billion.
BlackRock owns the popular iShares ETF family. Its largest ETFs include its iShares Core S&P 500 ETF (IVV), which tracks the S&P 500, and its iShares Core MSCI EAFE ETF (IEFA), which tracks the global MSCI EAFE Investable Market Index. The IVV fund has an AUM of $455 billion and the IEFA fund has an AUM of $117 billion.
As for State Street, investors will likely recognize its popular SPDR ETFs, including its S&P 500 sector SPDR ETFs. State Street's largest ETF is the SPDR S&P 500 ETF Trust (SPY). With an AUM of $515 billion, the SPY ETF is currently the largest ETF in the U.S. market by assets. The Technology Select Sector SPDR Fund (XLK) is the most popular SPDR sector ETF with an AUM of $64 billion.
Just because BlackRock, Vanguard and State Street don't actually own the majority of the assets in their funds doesn't mean concerns over their market influence should automatically be dismissed.
The big three fund managers may not own their investors' stocks, but they do vote on behalf of their investors on corporate governance issues. As a result, the fund managers have drawn criticism from both the right and left ends of the political spectrum. Progressive Senator Bernie Sanders has called the concentration of assets held by the big three "obscene."
TITLE: More Dangerous to Your Dog Than Kristi Noem? Private Equity
https://www.commondreams.org/opinion/kristi-noem-dog
EXCERPT: In 1996, there were about 8,000 companies listed on the various public stock exchanges; today there are around 4,000. A big part of the reason why that number has shrunk so dramatically is that private equity firms have been buying publicly traded companies, loading them with debt, stripping them for parts, and then bankrupting them when there’s no blood left to squeeze out.
Brendan Ballou’s book Plunder: Private Equity’s Plan to Pillage Americalays out in damning detail how this has come about. He notes that just the three largest US private equity groups now control so many companies they’d collectively be the third largest employer in America behind Walmart and Amazon.
Most of the businesses they own and have saddled with debt and fees probably won’t survive the plunder over the long term, he writes:
“Consider the following: J.Crew. Neiman Marcus. Toys “R” Us. Sears. 24 Hour Fitness. Aeropostale. American Apparel. Brookstone. Charlotte Russe. Claire’s. David’s Bridal. Deadspin. Fairway. Gymboree. Hertz. KB Toys. Linens ’n Things. Mervyn’s. Mattress Firm. Musicland. Nine West. Payless ShoeSource. RadioShack. Shopko. Sports Authority. Rockport. True Religion. Wickes Furniture.
“The list goes on. All these companies went bankrupt after private equity firms bought them. Some were restructured, often by firing workers or abandoning retirees’ pension obligations. Many simply no longer exist.”
Democrats in Congress are beginning to pay attention to these modern-day pirates, and several proposals are in the works to deal with them. The first, proposed in 2019 but yet to pass either the House or Senate, is the Stop Wall Street Looting Act, put forward by Senators Elizabeth Warren (D-Mass.), Tammy Baldwin (D-Wisc.), and Sherrod Brown (D-Ohio), along with Representatives Mark Pocan (D-Wisc.), and Pramila Jayapal (D-Wash.).
In a press release, they noted that the Act is:
“[A] comprehensive bill to fundamentally reform the private equity industry and level the playing field by forcing private equity firms to take responsibility for the outcomes of companies they take over, empowering workers, and protecting investors.”
In Ballou’s book, he suggests that the Securities and Exchange Commission (SEC), Treasury Department, and Federal Reserve all have significant abilities to regulate private equity but have all failed to exercise those powers.
The Biden administration has taken some tentative steps (the first to do so in 40 years), but even a weak proposal to end the carried interest passthrough loophole that private equity owners use to cut their own taxes was diluted to the point where it vanished in the last budget Congress passed. The provision ending that tax loophole was, instead, replaced with a new and larger tax loophole for small and medium-sized businesses owned by private equity companies, giving them a whole new range of targets for acquisitions.
The last area being targeted by progressives in a few states and discussed at the federal level is to end the immunity private equity firms have from liability for actions the companies they’ve stripped take because of budget and staffing cuts.
When a group of nursing home patients tried to sue private equity managers for the death of their relatives caused by neglect in facilities that had been looted by those private equity firms, federal courts killed the lawsuits because technically the private equity firms didn’t “own and operate” the facilities. This obscenity also reflects post-Reagan changes in federal liability law put into place by on-the-take (mostly Republican) legislators.
Back in 1966 there was a hit song by Dr. West’s Medicine Show titled The Eggplant that Ate Chicago. The opening verse lays out exactly where America is today with private equity:
“You’d better watch out for the eggplant that ate Chicago,
“For he may eat your city soon.
“You’d better watch out for the eggplant that ate Chicago,
“If he gets hungry, the whole damn country’s doomed.”
Fully one-fifth of the entire American business landscape is now largely or entirely controlled by private equity, which is draining billions out of our economy every week to stash in the money bins of its morbidly rich owners. The CEO of Blackstone, the country’s largest at over $900 billion in assets, is Stephen Schwartzman, who took home $896.7 million in pay and dividends last year and $1.26 billion in 2022. Just one guy.
And, predictably, he's a GOP mega-donor and willing to repeat Trump lies (“We’ve got open borders with 8 million people coming over!”) while trash-talking President Biden.
Because of Citizens United, he’ll be able to help Republican candidates, including Trump, in ways that are almost as unlimited as the cash he drains from the companies he oversees. Generally, the industry loves Republicans (who take their millions and love them back) and hates Democrats (who want to regulate them to protect American companies and workers).
A recent analysis found that private equity acquisitions have led to over a million job losses in America during the past decade. More come day by day.
This has gone way beyond just making it more expensive to get your dog’s rabies shot, although private equity’s role in buying up and bleeding dry vet clinics is now one of the most in-our-faces examples of how private equity screws consumers to make its owners richer than a pharaoh.
Seventy percent of Americans are pet owners, so the echoes of private equity’s latest raids are now bouncing around the US media landscape with headlines like “ Vets fret as private equity snaps up clinics, pet care,” “Why Your Vet Bill Is So High,” and “Private Equity Vets Are Coming for Your Kitten.” One could argue that the industry has caused more puppy deaths than Kristi Noem.
Private equity has grown to become one of the major forces driving income and wealth inequality in America; they are actively making it harder for small and medium sized business to start, grow, and prosper; and they corrupt our tax code via legalized bribes to mostly-Republican members of Congress.
It’s beyond time their abuses are ended.
TITLE: Private equity’s capitulation is delayed, not cancelled
www.ft.com/content/6b8d8b4f-b023-45a2-b202-7efba6470d04
EXCERPT: The industry’s latest reprieve comes courtesy of the booming debt market. Investors are keen on high yields. Banks are slugging it out with private credit funds to provide financing. The result is that spreads on US term loans have tightened by almost 100 basis points in the 12 months to March, according to PitchBook LCD data. Activity in the US leveraged loan market has topped $300bn in the first quarter of 2024 — the vast majority are opportunistic swoops to refinance, reprice and extend the maturities of existing debt.
This wave of refinancings buys the industry some breathing room. It follows on from a whole series of wheezes aimed at delaying their day of reckoning. Continuation funds have given firms the opportunity to shuffle assets to a new group of investors and offer the previous lot an exit. Net asset value loans — where a firm raises debt secured on its entire portfolio, rather than on a single company — have provided a way to keep feeding capital to companies that need it.
Buying time is not as dubious a strategy as it might sound. Public market multiples have improved, albeit driven by a small number of stocks. The European initial public offering window has tentatively opened, although mainly for slam-dunk equity stories such as Switzerland’s Galderma. Lower debt costs will improve earnings, and a longer lead time gives the private equity industry time to grow companies into their valuations.
But none of this changes the basic physics of this market. The industry has amassed $3.2tn of assets, says Bain. Holding periods are increasing. And exits in the first quarter of 2024 only amounted to $81bn, down 22 per cent on the first quarter of last year, according to S&P Global Market Intelligence.
The pressure to return money to investors is rising, not least to provide them with capital to recycle back to the industry as it tries to raise new funds. While efforts to delay exits may help firms avoid the worst of a crunch, the day of reckoning still beckons.