The Australian federal government is set to examine the power “mega-funds” like U.S. giants BlackRock, Vanguard, and local super funds hold over the country’s financial sector, with the House of Representatives Standing Committee on Economics to investigate the issue of “common ownership” and whether it has led to possible collusion between firms.
Tim Wilson, federal member of Parliament and chair of the Committee, said the Australian stock exchange was already subject to increasingly concentrated ownership by a small number of mega-funds.
“We don’t want a stock exchange where a hand full of ‘mega funds’ make all the decisions, and ordinary investors are locked out, and higher costs are paid by Australians,” he said in a statement.
“Common ownership flow-on risks are higher prices and collusion, corporates imposing public policy agendas while bypassing democracy, and disempowering ordinary investors,” he added.
In February, Carole Comerton-Forde, professor of finance at the University of New South Wales (UNSW), found that BlackRock and Vanguard owned 9.7 percent of the ASX300—Australia’s 300 largest publicly listed companies.
Further, Andrew Leigh, deputy chair of the Committee and federal Labor MP, published a paper (pdf) in April—along with Adam Triggs of the Australian National University—claiming that 49 out of 443 industries in Australia exhibited common ownership, including banking, retail, insurance, iron ore mining, and explosives manufacturing.
Common ownership refers to when one entity simultaneously owns shares in competing firms.
BlackRock and Vanguard, for example, both own over five percent of each of the “Big Four” Australian banks, Commonwealth, ANZ, Westpac, and NAB.
Meanwhile, U.S. investment giant State Street is also expected to come under scrutiny, who, along with BlackRock and Vanguard, are the largest shareholders in 88 percent of the S&P 500—the 500 largest U.S. listed companies.
Australian superannuation firms and groups such as the Australian Council of Superannuation Investors (ACSI)—which represents 36 superannuation firms—are also likely to be investigated.
Rob Nicholls, associate professor of regulation and governance at UNSW, told The Epoch Times that the inquiry is not just about collusion. It is also about the developing trend of ethical investing.
“For the chair of the inquiry, Tim Wilson, the issue is likely to be the strength of industry superannuation funds. For the vice-chair, Andrew Leigh, the issue is likely to be Vanguard and BlackRock.”
“Although the issue of common ownership has been examined by a number of academics, whether there is an actual problem is a contested point,” Nicholls said. “The potential for harms flowing from common ownership is far greater than actual harms that have occurred.”
“The critical issue for Tim Wilson is ESG (environmental, social, and governance). In the U.S., Vanguard, BlackRock, Fidelity, and others have decided that ethical investing produces higher returns for its investors than investment in non-renewable energy,” he said.
In recent years, ESG or social justice goals has taken a more prominent position in the decision-making of major Western corporations. Some of these initiatives include gender diversity among staff and climate change action.
Larry Fink, CEO of BlackRock, for example—the largest investment fund globally controlling US$9 trillion in assets—has vowed to steer clear of investing in companies deemed to be major emissions generators, particularly coal producers.
This comes after 1,715 companies around the world (controlling US$81.7 trillion) pledged to take action on climate change in 2018.
It is a trend that is being felt already with Australian small-medium sized mining firms warning of difficulties in obtaining financial support to get their projects off the ground from financial groups.