Who owns our world? In recent years, one set of financial actors keep coming up as an answer to that question: asset management firms.
Asset managers oversee tens of trillions of dollars-worth of investments in assets across the world. The most well-known asset management firms are the “Big Three” of BlackRock, Vanguard and State Street Global Advisors, whose business model largely rests on so-called “passive” index funds whose stock investments make these firms the top shareholders of thousands of corporations.
But it’s not just financial instruments like stocks and bonds that asset managers hold. They are increasingly the direct owners of the “real” assets that shape our livelihoods. From housing to hospitals and water networks to wind farms, asset management firms with names like Blackstone, Brookfield and Macquarie are gobbling up the basic stuff we all depend on to exist. And with their goal of extracting big profits as ruthlessly and quickly as possible, this new “asset manager society” does not bode well for humanity.
This is the topic of Brett Christophers’s powerful new book, Our Lives in Their Portfolios: Why Asset Managers Own the World, published by Verso press. Christophers pulls back the curtain on a notoriously opaque industry and demystifies asset managers, clearly and thoroughly surveying what they are, the forces that propel them to mercilessly extract profit, and what all of this means for our collective future.
Christophers is a professor in the department of social and economic geography at Uppsala University in Sweden. He is the author or coauthor of five previous books, including Rentier Capitalism: Who Owns the Economy, and Who Pays for It?
In this exclusive interview with Truthout, Christophers discusses what asset managers do, how they’re programmed to aggressively squeeze out profits, how they’re increasingly capturing “real assets” like housing and energy infrastructure, and what we might do about it all.
Derek Seidman: While asset managers have huge amounts of power in our society, it’s not apparent to many people what they are, how they operate and why they’re so powerful. Can you offer a brief run-down?
Brett Christophers: In reality, it’s a simple business. Asset managers are companies that invest on behalf of others. They gather money from end investors, which includes both wealthy individuals and institutional investors, such as pension plans and insurance companies. Asset managers carry out their investments, and those investors pay them fees for that service.
That’s essentially what asset managers do: They invest others’ money and earn fees for doing that. They can invest in many different things, such as financial assets, like stocks and bonds, or other assets — anything, really.
They’ve gone from being pretty marginal actors in the economy a few decades ago, to being very significant actors today. The traditional way of measuring their size or significance is the amount of capital they manage. In the 1970s, it was less than a trillion dollars globally. Today, that number is somewhere on the order of $100 trillion.
So, they’ve gone from being nothing, essentially, to being extremely big, in a relatively short space of time.
What is the role of “funds” in the asset management business?
If you’re an asset manager raising capital from clients, you need a vehicle that enables you to pool together that capital and invest it. The investment fund is the preeminent vehicle used to do that. These funds come in different shapes and sizes — private equity funds, index funds, mutual funds — but they are all creatures of the asset management industry.
When you read that, say, BlackRock has bought this or that asset, that’s a shorthand way of saying an investment fund managed by BlackRock bought the asset. That actually means that the real owners of the asset are not the asset managers, but the different entities — and there can be hundreds of them — who have committed money to that investment fund. BlackRock might put a small amount of their own capital into their funds — typically around 2 percent — but most of the capital in the fund is from pension plans, insurance companies and the high net worth individuals.
The fund is at the very core of the industry, because it’s the vehicle through which asset managers do what they do. That’s why asset managers are often referred to as “fund managers.”
Asset managers like BlackRock and Vanguard get a lot of attention. They have significant shareholding stakes across thousands of companies. But you make the case for focusing on asset managers that directly control “real assets” like homes, utilities and hospitals. Why did you think it was important to make this distinction in your analysis?
The conventional asset managers invest principally in publicly listed financial securities, such as the stocks of corporations like Apple and Google, and the bonds issued by those companies and by governments. Typically, they do this through so-called “index funds” that replicate the performance of major market indices, like the S&P 500.
There’s a good reason why these conventional asset managers are a big focus. That’s where most investment is occurring in terms of sheer numbers. If you look at the shareholder register of any big U.S. listed company, you see the BlackRocks and the Vanguards.
I shift the focus for a few reasons. For one, conventional asset managers like BlackRock and Vanguard have already received lots of focus as owners of contemporary capitalist corporations. But I also argue that their significance is overemphasized. There’s an argument that, because these firms own 7 or 8 percent of all big companies, they’re somehow controlling the global economy. I don’t think these firms have that kind of control, nor do they even want it. That’s not their business model.
I argue that there’s a whole other area of asset management that is, by any measure, much more directly relevant to people’s everyday lives than the activities of the BlackRocks and the Vanguards: asset manager ownership and control of “real assets” that we fundamentally depend on, like housing and infrastructure — electricity grids, parking meter systems, toll roads, hospitals, schools, farmland, and so on.
To the extent that asset managers own housing and infrastructure we rely on, and determine how much it costs for us to live in that housing and use that infrastructure, they also determine the conditions in which those assets exist, and they have a huge impact on our daily lives that people just haven’t been talking about much.
You sometimes use words like “extractive” and “colonizing” to describe the relationship between asset managers and the real assets they control. Can you elaborate?
While all private owners are trying to make a profit, asset managers tend to be particularly ruthless and single-minded in extracting profit from the assets they oversee.
There are structural reasons for this. One is the huge salaries at these firms. There was an article in the Financial Times that said the average salary at Blackstone now is around $2 million. If you’re Blackstone, it’s not possible to pay those kinds of salaries unless you’re being pretty ruthless about extracting profits from the assets you own. You can’t be a landlord that is giving rent breaks to tenants while paying $2 million to your staff.
Similarly, the investment funds run by real-asset managers charge very high fees compared to the index funds run by the likes of BlackRock. The industry norm is to charge investors a 2 percent per annum management fee and a 20 percent performance fee. You can only charge those high fees if you promise investors very high returns. You can only deliver those high returns if you’re being very ruthless and single minded on extracting profit. So, as an asset manager, you’re compelled by the nature of your business to be very ruthless.
Another important factor is the short-term time horizons involved in real-asset management. Asset managers claim to be committed and careful custodians of housing and infrastructure. But in reality, their investments in real assets are channeled principally through “closed-end” funds that have a fixed life — say, 10 years. This means that — and this is one of the most important things to understand about the whole asset management industry — when asset managers buy housing and infrastructure, they almost always buy it with the intention of selling it within seven or eight years, or even two or three years if they can make a big profit.
In other words, as soon as an asset manager is invested in a housing or infrastructure asset, the uppermost thing in their mind is, “How can we maximize the sale price as quickly as possible?” If you’re talking about housing, that means lifting rents as quickly and as high as you can. It means minimizing operational costs, like investing money and being a good landlord, and sticking to Band Aid solutions for asset maintenance.
Can you say more about how the basic human need of housing has fallen under the rule of asset managers, and the implications of this?
In the early 1990s, asset managers began to significantly buy into global housing markets, but this went into overdrive after the 2008 financial crisis. Suddenly you had huge stocks of “distressed housing” because of massive foreclosures, especially in the U.S. Lots of housing stock became quickly available, and very cheaply. To its eternal discredit, the U.S. government enabled big asset managers to hoover up large amounts of housing on very favorable terms.
Since then, asset manager investment in housing has only grown more. Not surprisingly, rents have been rising in the U.S. and internationally very consistently. Not enough new housing is being built in many places, so rents are going up, and that’s something asset managers want to invest in. Governments haven’t stopped asset managers from buying up loads of housing. In fact, they’ve actively encouraged it.
The implications of all of this have been very negative: On the one hand, rapidly increasing rents in housing that has come under the control of asset managers, and on the other hand, deleterious outcomes in aspects of housing other than rent, like evictions. If you look at eviction rates in a particular metropolitan region, and you compare rental housing owned by asset managers versus rental housing owned by other types of owners, eviction rates tend to be substantially higher when the owners are asset managers.
You focus on how asset managers have captured much of our infrastructure. You make the provocative point that “the transition from fossil fuels to renewables also represents a transition to asset-manager society.” Can you elaborate on that claim?
One thing that’s almost never talked about in relation to the energy transition is what it means in terms of ownership. The infrastructure of fossil fuel based energy around the world is roughly equally split between the public sector and the private sector. State-owned entities are major owners of fossil fuel assets. But if you look at clean energy assets such as renewables, the state is largely absent. It’s a private-sector thing for the most part.
So, as we transition from brown to green energy, we are transitioning towards a type of infrastructure that is predominantly privately owned, and away from the type of infrastructure that is predominantly public. This shouldn’t be surprising. Private ownership has become the default for neoliberal governance over the last 30 or 40 years, when the transition to green energy has started to happen.
Around the world, using various forms of incentives, governments are relying on the private sector to build green energy assets. Well, where in the private sector is most capital held for investment? It’s held by asset managers. So, it’s not surprising that a huge amount of the investment in clean energy is by asset managers, because they have the most capital available to carry out that investment.
For example, Brookfield Asset Management, who I write about, is one the world’s biggest owners of clean energy assets of any kind, not just among asset management groups. If you drive up to the wilds of Sweden, where I live, and you see a wind farm, the chances are pretty high that BlackRock is the owner.
So, as we transition from fossil fuels to clean energy, we are also increasingly transitioning to what I call “asset manager society.” And I think we should be wary of that. When asset managers are owners of infrastructure, the outcomes are generally not good for society.
Also, in relying on the private sector in general and asset managers in particular to drive the energy transition, we are de facto relying on continuing government subsidization of those investments. Asset managers are risk-averse institutions. When it comes to clean power, they fully expect governments to de-risk those investments with subsidies in precisely the way that, for example, the U.S. government has done through the Inflation Reduction Act. In tying societies into long-term subsidization of clean energy privately owned by asset managers, the public sector is taking on a lot of the risk with none of the reward.
The most well-known alternative asset management firm today might be the Blackstone Group, which you discuss in your book. How does Blackstone embody key features of asset management society?
Blackstone has become a lightning rod for a wider critique of asset managers and private equity. One reason might be because of the characters involved. Stephen Schwarzman, who co-founded Blackstone in 1985 and has been its CEO ever since, is a high-profile and colorful individual. He was an outspoken supporter of Donald Trump, which attracted a lot of attention to him. Whenever politicians in the U.S. have hinted at clamping down on the asset management industry, he’s hit back very aggressively.
It’s also Blackstone’s sheer size. It’s the world’s biggest owner of housing among all asset management firms. Blackstone became the biggest owner of single family housing in the U.S. subsequent to its creation of Invitation Homes.
But while Blackstone is a very prominent asset management firm, it’s not doing anything fundamentally different from other asset managers. They all adopt the same kind of models. Blackstone manages to raise more capital from investors, but it’s not fundamentally going about its business in a different way.
Does asset management society represent, to you, a fundamentally new form of capitalism?
I don’t think that the more prominent role of asset managers within contemporary capitalism represents a new form of capitalism. However, I do believe the prominence of asset managers is the primary manifestation of the rentier dimension to capitalism today.
There’s always been an aspect of capitalism that is about capturing monopolistic control of key resources or assets and earning rents through that control. In the last few decades we have entered a period of capitalism where this rentier aspect is particularly prominent, and where rentiers have accrued much greater power and profit than previously. Neoliberal policy put in place the conditions for a revival of the rentier, and asset managers are a primary embodiment of that re-rentierization of capitalism.
You present a compelling case about the power and reach of asset managers over our lives and how they’re structurally set up to hyper-exploit workers and renters. What, then, should be done to challenge their power?
I don’t think asset managers are very vulnerable right now. Part of their strength comes from the fact that they are largely invisible to many people. And they’ve managed successfully to pull the wool over the eyes of many policy makers. They have somehow persuaded governments that they are decent custodians of the assets they control, and also that they’re helping ordinary pensioners earn good returns on their retirement savings.
If they have a vulnerability, perhaps it’s that lots of research shows that the types of asset managers I examine in my book don’t actually deliver particularly strong returns. After you deduct the fees they charge, much research suggests they’re not delivering much better returns on average than a basic index fund. And actually, the cases of catastrophic failure are more common.
Are there things that can be done? Sure. The obvious one is you can just stop them owning certain types of things. There’s nothing to stop governments from saying that certain types of assets just simply shouldn’t be owned by certain types of actors, such as asset managers. You could prohibit it, and it would probably be quite popular.
You could also make real assets unattractive to invest in. For example, Blackstone started buying a lot of housing in Berlin in 2017, but then Berlin’s local government introduced a new regulation that would limit the ability of landlords to increase rents and even lower some rents. Blackstone immediately said, “Okay, we’re not investing any more in Berlin housing.” You can do things like that. Sadly, about a year later, the Berlin rent law was overturned, but the fact that Blackstone said it wasn’t going to invest anymore shows that you can pass measures to make these unattractive assets.
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