Charlie Munger shared his issues brazenly on BlackRock (NYSE:BLK) and the rising energy of its CEO, Larry Fink. Throughout a 2022 shareholder assembly for the Every day Journal Company (NASDAQ:DJCO), the late vice chairman of Berkshire Hathaway (NYSE:BRK, BRK.B)) warned that passive investing had quietly handed an excessive amount of management to only a few individuals.
“Oh, big,” Munger mentioned when requested if index funds have been impacting inventory costs. He identified that giants like BlackRock, Vanguard and State Avenue (NYSE:STT) vote on behalf of hundreds of thousands of traders, giving them unbelievable sway over company boards and selections.
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“We now have a brand new bunch of emperors, and so they’re the individuals who vote the shares within the index funds,” he mentioned. “Possibly we are able to make Larry Fink and the individuals at Vanguard Pope,” he added, half-joking.
However Munger made it clear he wasn’t laughing concerning the dangers. “I don’t know what the implications are going to be, however I predict it won’t be good,” he mentioned.
BlackRock manages over $13.46 trillion in property, making it the biggest asset supervisor on the planet. The agency owns massive stakes in most main firms and holds immense voting energy over shareholder resolutions. Whereas index funds have been created to assist common traders entry the inventory market, they’ve additionally resulted in fewer individuals controlling extra company energy.
Fink, particularly, has drawn hearth for utilizing that affect to push environmental and social targets. In a 2022 letter to CEOs, he warned firms that BlackRock may vote towards administration groups that didn’t observe sustainability requirements. That type of stress has actual penalties. In 2021, BlackRock helped activist fund Engine No. 1 change three board members at Exxon Mobil (NYSE:XOM) regardless of the fund proudly owning simply 0.02% of shares.
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“I feel the world of Larry Fink, however I’m undecided I would like him to be my emperor,” Munger mentioned.
Since then, BlackRock has backed away from its earlier ESG push. It exited the Web Zero Asset Managers Initiative and scaled again assist for environmental proposals. However that shift didn’t cease the criticism.
Even because it tones issues down, BlackRock nonetheless holds huge affect over how firms are run, and Munger’s warning hasn’t been forgotten. He believed in capitalism, however he additionally believed that an excessive amount of concentrated energy may lead to hassle. And on the planet of trillion-dollar fund managers, that concern nonetheless resonates.
