There may be 147 companies in the world that own everything, as colleague Bruce Upbin points out, and they are dominated by investment companies as Eric Savitz rightly points out…
But given the nature of how money is invested, there are four companies in the shadows that really control those companies that own everything.
So of the $25.69 trillion in worldwide assets we’ve identified, $2.23 trillion are directly in indexes (ETFs and index mutual funds) with another $22.3 trillion indirectly beholden to indexes (that 95% of actively managed fund holdings said to be determined by an index).
You can see where I’m headed here. That means the real power to control the world lies with four companies:
- McGraw-Hill, which owns Standard & Poor’s
- Northwestern Mutual, which owns Russell Investments, the index arm of which runs the benchmark Russell 1,000 and Russell 3,000
- CME Group which owns 90% of Dow Jones Indexes
- Barclay’s, which took over Lehman Brothers and its Lehman Aggregate Bond Index, the dominant world bond fund index
Together, these four firms dominate the world of indexing. And in turn, that means they hold real sway over the world’s money.
While that may seem benign – they are indexers after all you may say – a financial index isn’t cut and dried like the index of a book. It’s a misperception indexers merely do some simple math like identifying the 500 largest US companies and voila! you have the S&P 500. Every indexer has a fudge factor that allows them to say one company is more “economically significant” for the index at hand than another company. To again take the S&P 500 as an example, the 502-largest company by market cap could get the nod over number 500 by size if S&P decides it wants to.
The power is even more obvious in bonds. The now-Barclays Aggregate Bond Index attempts to mirror volume of bond issuance in a region or the world, but it can’t include even a sizable percentage of all the bonds issued. Essentially, there’s a big judgment call in there in what bonds it adds to its index. A judgment that influences bond fund flows worldwide.
What does all this mean?
