Fascinating post by colleague Bruce Upbin on the dominant ownership position of the “147 companies that control everything.”
But I think there is basic flaw in the thinking of the underlying study, which as Bruce notes comes from three systems theorists at the Swiss Federal Institute of Technology in Zurich, and which was picked up by the magazine New Scientist.
So, here’s the issue. We have met the enemy, as Walt Kelly once wrote in the comic strip Pogo, and he is us.
Most of the companies on the top 50 list are simply investment companies – they aren’t operating companies. (The only obvious example is #50 China Petrochemical.) The enormous size of these companies is simply a reflection of the way most people invest in the public markets, through mutual funds, money funds and other vehicles. Disturbing? Nah. Simply a reflection of the way most people invest in the markets.
Consider a few tidbits:
- According to the Investment Company Institute, a trade group for the mutual funds industry, as of the end of August, mutual funds held $11.6 trillion in assets.
- Money market funds held $2.6 trillion as of last week.
- Exchange-traded funds owned $1 trillion in assets as of the end of August.
- U.S. retirement accounts as of the end of August held $18.2 trillion in assets as of the end of Q2.
- Worldwide, the mutual fund industry held $25.9 trillion in assets as of the end of the second quarter.
- The value of the Wilshire 5000, which represents all U.S. equity securities, as of the end of September had a value of $13.8 trillion.
And wait, a few more stats:
- 51.6 million U.S. households own mutual funds; they are held by 90.2 million individuals.
- 44% of U.S. households are fund investors.
- As of the most recent report from the ICI, funds own 27% of U.S. stocks, 33% of municipal debt securities, 45% of commercial paper, and 11% of all U.S. government securities.
- The median size of U.S. investment in mutual funds is $100,000; the median number of funds owned is four.
In short, it isn’t Barclays (a larger manager of index funds), Capital Group (which runs the American Group of funds) and FMR (the holding company for the Fidelity Funds) that controls the world – you do, via holdings in mutual funds, both through retirement funds and in brokerage accounts. This is no secret cabal; this is the capital markets at work, allowing everyone a way to save for college, a new home and retirement. Are there abuses that come from the ability of these institutions to make large investment decisions? Sure. But there are alternatives: if you don’t like the results, pull your assets from the offending institutions and put them someplace else. There’s no conspiracy here, just the financial markets doing what they do, allocating capital on behalf of investors large and small.