The Specter of the Giant Three

21 Pages Posted: 11 Jun 2019

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; National Bureau of Economic Research (NBER)

Scott Hirst

Boston University - School of Law; Harvard Law School Program on Corporate Governance

Multiple version iconThere are 2 versions of this paper

Date Written: June 2019

Abstract

This paper examines the large, steady, and continuing growth of the Big Three index fund managers—BlackRock, Vanguard, and State Street Global Advisors. We show that there is a real prospect that index funds will continue to grow, and that voting in most significant public companies will come to be dominated by the future “Giant Three.”We begin by analyzing the drivers of the rise of the Big Three, including the structural factors that are leading to the heavy concentration of the index funds sector. We then provide empirical evidence about the past growth and current status of the Big Three, and their likely growth into the Giant Three. Among other things, we document that the Big Three have almost quadrupled their collective ownership stake in S&P 500 companies over the past two decades; that they have captured the overwhelming majority of the inflows into the asset management industry over the past decade; that each of them now manages 5% or more of the shares in a vast number of public companies; and that they collectively cast an average of about 25% of the votes at S&P 500 companies.We then extrapolate from past trends to estimate the future growth of the Big Three. We estimate that the Big Three could well cast as much as 40% of the votes in S&P 500 companies within two decades. Policymakers and others must recognize—and must take seriously—the prospect of a Giant Three scenario. The plausibility of this scenario makes it important to understand the incentives of index fund managers, a topic that we study in other work.

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Suggested Citation

Bebchuk, Lucian A. and Hirst, Scott, The Specter of the Giant Three (June 2019). NBER Working Paper No. w25914. Available at SSRN: https://ssrn.com/abstract=3401620

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

National Bureau of Economic Research (NBER) ( email )

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Scott Hirst

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Harvard Law School Program on Corporate Governance ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

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