The two most important trends driving this rise toward collectivist rather than firm-level profit maximization since 1980 are, “(1) the positions of investors in firms become more similar to each other over time and (2) the similarity is largely driven by a broad trend toward indexing among asset managers,’’ write authors Matthew Backus of Columbia University, Christopher Conlon of New York University and Yale’s Sinkinson. “This contrasts with what appears to be the developing narrative that common ownership is largely a function of rising investor concentration particularly among the ‘Big Three.’’’
Or, in other words, a combination of herding and index-hugging behavior on the part of asset managers. The irony: passive index funds, blasted as being “worse than Marxism” for the lack of conscious decision-making applied to capital allocation, might be merely codifying and reinforcing a trend put in motion by active managers -- at a much higher cost.
Of course, these academic arguments don’t tend to carry much weight in capital markets circles -- or even for organized labor. Bloomberg columnist Matt Levine, who attended a recent Federal Trade Commission panel on this topic of collective ownership, indicated that representatives from BlackRock, the Council of Institutional Investors, the U.S. Chamber of Commerce, and the AFL-CIO all agreed it’s a non-issue. For now...
This article was provided by Bloomberg News.