The Fennel Newsletter
Happy Halloween everyone. Whether you’re a fan of decorations and dressing up, pumpkin-themed beverages, trees changing colors, or bite-sized candy, we hope you find some way to appreciate spooky season.
You know what else is scary? Paying taxes. (Just kidding IRS.)
So if you’re looking for a fright, check out our recent video about carbon taxes. Maybe afterwards, you’ll realize that they aren’t so scary after all.
And if you don’t already, be sure to follow Fennel on Instagram and TikTok for more video content.
What We’re Talking About
Debunking claims that a ‘cartel’ of asset managers controls major U.S. corporations (CNBC)
What happened: Although this isn’t technically news, CNBC recently published an explainer debunking the conspiracy that the Big Three asset managers secretly control all major US corporations.
If you don’t know who the Big Three are, they’re BlackRock, Vanguard, and State Street, and collectively they manage over $20 trillion in AUM.
How’d they get so big? These three companies manage a number of popular index funds and ETFs that investors put their money into in order to get exposure to different parts of the market. If you own any ETFs or a 401k, there’s a decent chance that one of these companies manages your money (at least, indirectly).
In order to offer these funds, these three asset managers have to buy the underlying shares of each company represented in their funds. That means if one of the Big Three offers an ETF that tracks the S&P 500, it has to buy the underlying shares for all 500 companies — and it has to buy a lot of them.
For this reason, if you look at the largest shareholders of almost any major US company, you’ll probably see one of these three companies listed near the top.
Why we care: This significant ownership of all the big companies has understandably made some people suspicious. For example, if Vanguard owns over 8% of all GOOGL shares, what does that mean for its influence on the world’s most popular search engine?
This kind of thinking has made people on both sides of the political spectrum nervous about the Big Three, whether that’s Vivek Ramaswamy who thinks the Big Three are “injecting” ESG ideology into corporate America, or environmental activists who say the Big Three aren’t doing enough to dissuade companies from emitting large amounts of greenhouse gasses.
But this lacks nuance. Technically, it’s the individual investor (like you) that owns the shares when they buy an ETF or mutual fund managed by the Big Three. When you sell your investment, you get to keep the profits (if that investment grew). The Big Three makes money through management fees for their funds, which is standard practice across the asset management industry.
However, there’s one thing you should know about the Big Three, and that’s that the asset managers often retain the right to vote on the behalf of their clients in shareholder votes. This may seem reasonable, if you own an ETF that tracks the Russell 1000 you might not want to get proxy materials for all 1,000 companies. But it does mean that the Big Three companies each have significant influence over a large number of major companies through shareholder voting. Or at least, they get to speak on the behalf of their many clients without necessarily asking what their clients think.
This doesn’t go as far “cabal” territory — in fact, BlackRock, Vanguard, and State Street often disagree with each other — but if a large financial institution using your money to influence corporate decisions leaves a bad taste in your mouth, you may want to think twice about which funds you put your money into. After all, some of the funds offered by the Big Three let you decide how they should vote.
A Noteworthy Number
535
Climate change skeptics tend to throw water on the idea of transitioning to renewable energy at any chance they can get. One such criticism points out the fact that a renewable energy system requires mining a significant amount of minerals like lithium, copper, and so on.
This is true. Battery technology relies on these sorts of materials and switching entirely to renewables would mean mining for even more of these resources.
However, research done by Michael Thomas of Distilled shows that fossil fuel mining outpaces the mining necessary for a renewable energy system… by a lot.
According to his research, the world will have to mine 28 million tons of lithium, copper, cobalt and other minerals by 2040 in order to limit global warming to 2 degrees celsius. However, fossil fuel companies across the world already mine 15 billion (with a “b”) tons of oil, coal, and natural gas every year. That’s 535x higher than the mining necessary for renewables.
While the mining processes for these resources aren’t exactly the same, comparing the two presents a stark difference.
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