A growing debate is underway in Germany over the supposed market power and influence of large asset managers. Where a web of cross-shareholdings once controlled large German corporations in what was referred to as “Germany, Inc.,” some critics now say that faceless Anglo-Saxon funds are gaining control over many companies listed on Germany’s benchmark DAX index.
Several academic studies from the United States have now posed the theory that the concentration of ownership among large asset managers in companies from a specific industry (known as “common ownership”) leads to less competition and promotes social imbalances in society.
Unfortunately, much of the current debate and broader discourse over the power and size of asset managers is subjective and ignores a key aspect: Asset managers such as BlackRock do not own the shares in many companies. They are trustees and do not invest with their own assets, but exclusively with the assets their customers entrust to them.
Representing shareholder interests on behalf of the customer means standing up for the principles of good corporate governance, but it does not influence a company’s business activities.
Investors including large pension funds and insurance companies, as well as private investors, instruct their asset managers to invest funds in accordance with their guidelines. The investment goals – and their implementation in the active and passive portfolios of a fiduciary asset manager – are as different and diverse as their customers.
That said, the suggestion that investors pursue identical interests in investing their money is completely absurd.
In practice, representing shareholder interests on behalf of the customer means standing up for the principles of good corporate governance, but it does not influence a company’s business activities, especially not its pricing and product strategies. That’s why asset managers acting as fiduciaries, such as BlackRock, generally do not claim seats on the supervisory boards of these companies.
The theories, developed at American universities, argue that common ownership structures could impair price competition beyond a level justifiable under antitrust law. But the authors fail to provide empirical evidence, nor can they demonstrate a causal relationship between large investments by asset managers and possible price fixing among companies. The studies consider concentrated ownership situations across a very short time period and individually selected sectors.
Accusations and the knockout argument of the "size" of asset managers will not contribute to bringing more objectivity into the discussion, especially in light of the investment crisis with which many investors, including those in Germany, are confronted.
This selective approach does not allow any conclusions to be drawn for other industries or even the broader market. Nevertheless, the authors call for countermeasures, such as a tougher approach by competition watchdogs, regulation of the use of index funds and restricting the exercise of shareholder rights by so-called “passive” investors.
Such steps would be devastating and would have extremely negative consequences, especially for savers and small investors. Low-cost index funds would become more expensive and less accessible for investors. But investors should also be free to make their own decisions when it comes to choosing investment products.
Asset managers that offer their customers such products do not restrict competition among companies, but instead promote anticipatory investment, such as to accumulate capital in old age, and, as fiduciaries of the investors, provide companies with capital in the long term.
The debate over good corporate governance should be continued in Germany, and it should reflect the growing share of index-fund investors. However, we would like to see this occur in an objective manner and on the basis of well-founded data, and not in a polemically heated manner that omits important facts.
The industry has been engaged in the relevant dialogue for years – in Germany and elsewhere – with companies, lawmakers and regulators alike. General accusations and the knockout argument of the “size” of asset managers will not contribute to bringing more objectivity into the discussion, especially in light of the investment crisis with which many investors, including those in Germany, are confronted.
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