Larry Fink and the New Emperors of the Financial Industry

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The power of twelve

Earlier this year, Charlie Mungerthe famous irascible billionaire vice-president of Berkshire Hathawayturned his wrath on a phenomenon that his partner warren buffet often rented.

“We have a new group of emperors, and they are the ones who vote for index fund stocks,” Munger said at the annual meeting of Daily Newspaper Corp. “I think the world of Larry Finckbut I’m not sure I want him to be my emperor.

Munger’s words reflect growing concern among some investors, business executives, regulators, policymakers and politicians, writes the editor of FT Alphaville Robin Wigglesworth. Academics have even coined the term “asset manager capitalism” to describe the new reality of a financial system now dominated by fund managers rather than banks.

This is a phenomenon that will only increase. Some believe that the end result of the current trend of passive investing in asset management is that just a dozen people could end up exercising de facto control over most public companies in the United States – and even maybe in the world.

It was the provocative argument of John Coatesteacher at Harvard Law Schoolin an inflammatory 2018 article titled The twelve problem.

“Unless the law changes, the effect of indexation will be to overturn the concept of ‘passive’ investing and produce the greatest concentration of economic control in our lifetime. . . More fundamentally, the rise of indexation presents an acute, general and political challenge to company law. The prospect of twelve people potentially even controlling most of the economy poses a first-order problem of legitimacy and accountability.

The benefits of scale in asset management, and more specifically in passive investing, are clear. And last year, again, the big got even bigger. End of 2021, Avant-garde, black rock and State Streetthe three largest providers of index funds, together controlled an average of 18.7% of S&P 500 companies, according to lazard. Their small business ownership is even more concentrated. At the end of last year, they held 22.8% of the shares of the mid-sized S&P 400 index and 28.2% of the benchmark S&P 600 small-company index.

With that in mind, FT Alphaville has compiled an informal list of who it believes are the 12 most powerful people in the investment industry – and therefore the financial world – right now. Some are obvious, while others have a more subtle influence.

Read the full list here.

Private equity chiefs fear they’ll wake up with a ‘terrible hangover’

A group of top financiers sat in Berlin seven months ago marveling at the money they had made during a global health emergency.

As they reunited again this week in the latest episode of the private equity industry SuperReturn conference, the context was fundamentally different, writes the private equity correspondent Kaye Wiggins in this report.

The massive government stimulus packages and central bank crisis measures that had allowed them to keep businesses afloat – and use cheap debt to strike new deals and pay themselves dividends – are a thing of the past.

“This is a moment of judgment for our industry,” said Philippe FreiseEuropean co-head of private equity at KKRwhich embarked on an aggressive trading frenzy during the pandemic-era boom.

The Federal Reserve and bank of england the two raised rates as negotiators rallied. Share prices of listed buyout groups have fallen this year. Investors are struggling to commit cash to new buyout funds – because buyout groups rushed to bring them fresh cash last year – and the fall in value of their stock market investments has left them left over-allocated to private markets.

The huge flood of deals made at high valuations during the boom of the past two years risks turning into what at least four senior traders have privately called a “bad vintage” – the industry’s choice euphemism. private equity, meaning that pension funds and other investors would make less money than they expected when they committed cash to buyout group funds.

Private equity closed deals worth more than $800 billion last year, the highest on record, according to an estimate by Preqin shows.

Those who paid high multiples for fast-growing companies during this period “are going to wake up with terrible hangovers,” said Gabriel Caillauxtechnology investor co-chairman General Atlantic.

“In November, the biggest question was, God, when does the music end — and in a way, that’s wholesome,” he said.

Is the party over for private equity? Email me: harriet.agnew@ft.com

Chart of the week

Japan is moving forward with plans to buy large amounts of bonds in a bid to support the country’s economy, in stark contrast to other major countries exiting stimulus packages, writes Nikou Asgari.

The Bank of Japan will buy about 10 billion yen of bonds in June, roughly the equivalent of the United States Federal Reserve pick up $300 billion in debt a month during gross domestic product adjustment, says German Bank calculations.

Policymakers in Tokyo are continuing the bond-buying program as part of a plan to contain medium-term costs known as yield curve control that has been in place since 2016. The continuation of the program pushes Japan far out of line with even its most dovish global peers, such as the Swiss National Bank which surprised markets this week with its first interest rate hike in 15 years.

“This is an extreme level of money printing given that every other central bank in the world is tightening policy,” said Georges SaravelosHead of European Currency Strategy at Deutsche.

10 stories not to miss this week

Forget the “big resignation”. Georges Gatchgeneral manager of JPMorgan Asset Managementsays the asset management industry is in the midst of a talent war that has resulted in a “grand bargain” between employers and individuals.

Traditional asset managers are rushing to expand their alternative offerings. European groups including Amundi, Schröders, Fidelity International, Edmond de Rothschild Asset Management and Abrdn are among those seeking to exploit the growing market for private assets.

Public versus private: do ownership structures matter? Asset managers remain sharply divided on the benefits of staying private versus supporting listing growth.

Reforms to expand individual private pensions for China’s aging population have created a wealth of opportunities for the world’s largest asset managers, including black rock, Goldman Sachs Asset Management and Amundi.

“There is nothing to suggest DWS is unique,” ​​lawyers warn after the German asset manager was raided by police in a greenwashing investigation.

Three days before the crypto credit company Celsius froze customer funds, its founder promised “immediate access” to “billions of cash”. Alex MashinskyFailure to deliver on that promise has left the pugnacious anti-bank entrepreneur fighting for the survival of his business.

Meanwhile Capital of the Three Arrows failed to meet demands from lenders for additional funds after its digital currency bets deteriorated, tipping the major crypto hedge fund into a slump that comes as a credit crunch grips industry.

It’s a tough time to be a little tiger, as the proteges of a legendary investor Julian Robertson have suffered from the technological rout. The latest victim is Tiger Legatus Capital Managementwhich will close after 13 years.

The Security and Exchange Commission is considering whether to impose stricter rules on financial index providers, Wall Street’s new power brokers who now guide trillions of dollars of investment around the world.

black rock wants climate-focused investors to go beyond pure green investments and help heavy industrial and energy groups reduce their carbon footprint, with a new billion-dollar infrastructure investment program.

and finally

Tracey Emin, I Lay Here For You, 2022 © Allan Pollok Morris, courtesy Tracey Emin

Just outside Edinburgh is Jupiter Artland, a contemporary sculpture garden set in 100 acres of meadows, woodland and indoor gallery space. It houses over 30 permanent and unique site-specific sculptures for artists including Charles Jenk, Anis Kapoor and Anthony Gormley. This summer, Jupiter Artland welcomes I lay here for youcontemporary artist Tracey Eminis the artist’s first solo exhibition in Scotland since 2008. The exhibition takes its name from a six-meter bronze figure of the artist which stands in a wooded glade.

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