January 05, 2012
While attention has been focused on the activities of that great vampire squid, Goldman Sachs, investment firm BlackRock has been quietly taking over the American economy. In a presentation scheduled for 2:30 pm on Saturday, January 7 at the Labor and Employment Relations Association meetings at the Palmer House in Chicago, Professor Gerald Davis of the University of Michigan’s Ross School of Business documents the extensive reach of BlackRock. Aided by the growth of defined contribution pension plans and abetted by the weakness of other financial services firms, notably Barclay’s, during the financial crisis, BlackRock catapulted into first place in 2011 among the top holders of large blocks of shares of publicly-traded companies in the US. With $3.5 trillion in assets under management that they invest on behalf of their clients, the company has become the world’s largest investor. BlackRock manages assets for institutions such as pension funds and mutual funds, and its iShares business is popular with both retail investors and hedge funds who delegate all proxy votes for their iShares to BlackRock.
Among Professor Davis’ startling findings:
- Ownership of US corporations is no longer highly dispersed.
- In 2011 BlackRock held a 5% stake in 1,803 US listed companies. This is almost triple second place Fidelity’s 677 companies and more than triple third place Vanguard’s 524 companies.
- As a result of changes in the nature of equity markets – the growth of exchange traded funds (ETFs) and the decline in the number of new firms going public (IPOs) – the number of publicly-traded corporations has dropped by half since 1997 to about 4,300 listed US companies in 2011.
- BlackRock owns a 5 percent stake in more than two-fifths of publicly-traded US companies.
Professor Davis concludes: “Prospects for control of corporations by financial institutions have never been this high in a century.”
UPDATE:
A July 2011 ruling by the DC Circuit Court vacated the SEC’s 2010 proxy rule that allowed long-term shareholders’ that own at least 3% of a company’s shares to nominate directors.
