Vanguard and BlackRock Will Manage $20 Trillion Combined Within a Decade
BlackRock, Inc. (BLK) and Vanguard already hold the titles as the largest money managers around the globe, but in under a decade, they could become even bigger, managing as much as $20 trillion combined.
That's according to Bloomberg News calculations finding that Vanguard, which has $4.7 trillion in assets, will see that number grow to $10 trillion by 2023. Meanwhile, BlackRock, which has around $6 trillion in assets under management, will hit the $10 trillion mark by 2025. Bloomberg based its forecast on the most recent five-year average annual growth in assets at both firms. However, the financial media company cautioned that the gains are due in part to a long-running bull market in stocks that has increased the amount of assets under management. The asset managers may not continue to grow at the same rate if the equity markets pull back next year or in the years to come.
While a combined $20 trillion in assets is awe inspiring, it could also change the asset management industry, with the two firms holding big positions in some of the largest U.S. companies, giving them a lot of say on the direction of corporate America. It may also raise concerns that too much money is being held by too few firms. Bloomberg pointed out that, along with State Street, BlackRock and Vanguard hold significant stakes in the largest publicly traded companies in the U.S.
Looking at exchange-traded funds (ETFs), State Street Chairman Jim Ross said that global ETF assets should hit $25 trillion by 2025, which would send trillions of dollars toward BlackRock and Vanguard when taking into account both companies' market share in ETFs. Vanguard spokesman John Woerth declined to provide projections about future growth but told Bloomberg that "growth is not a goal."
In addition to having too much money in too few hands, the dominance of BlackRock and Vanguard in the asset management industry could raise concerns about the impact on competition and governance, noted Bloomberg. Bloomberg pointed to research from the University of Amsterdam revealing that both firms hold more than 5 percent of over 4,400 stocks. Some of the concerns include the fact that, if an institutional investor owns a big stake in two competitors, those companies may not reduce prices or make moves to compete effectively.
Citing controversial research by Jose Azar, an assistant professor of economics at IESE Business School, Bloomberg reported that airfare rose as much as 7 percent over 14 years starting in 2001 because institutional shareholders with common holdings placed less pressure on the airlines to compete against each other. BlackRock and Vanguard are among the top five shareholders in three of the largest airline operators, noted Bloomberg.
"As BlackRock and Vanguard grow, and as money flows from active to large passive investors, their percentage share of every firm increases," said Azar. "If they cross the 10 percent threshold, I think for many people that would make it clearer that the growth of large asset managers could create serious concerns for competition in many industries." The research has been called "vague and implausible" by BlackRock. Other academics have also questioned the study, noted Bloomberg.