The Stewardship Implications of Passive Investing: Mobilizing Large Asset Managers as Stewards of Capital Markets
Written by Jackie Cook and Jasmin Sethi on behalf of Morningstar for the Harvard Law School Forum on Corporate Governance.
A defining trend of global financial markets over the past 10 years has been growing investor preference for low-cost investment products with broad market exposure.
The shift in assets from actively managed instruments to passive investing strategies is re-shaping both the asset management industry and the structure of corporate shareholding.
Because of the economies of scale in index investing, the asset management industry is becoming more concentrated and the largest players own and control a greater portion of the global securities market.
Furthermore, index-tracking investing removes much of the flexibility of portfolios to diversify away from risky corners of the market while potentially affording the space for longer-term business strategies and investment horizons.