For more than a century, capitalism followed an apparently simple logic: those who provided the capital were usually the same people who made the decisions. Today, that relationship has been turned upside down. Millions of people still own their savings, but their management has become concentrated in very few hands. How did this transformation take place? And what does it tell us about twenty-first-century capitalism?

At the end of every month, Marc receives his salary. Like millions of workers around the world, a small portion of his income is automatically transferred into his pension plan. It is an almost mechanical gesture. The money disappears from his current account and becomes part of a savings fund that, in theory, will support him when he retires.

Marc does not think much more about it. He trusts that someone will invest that money wisely so that, over the years, it will grow in value. What he probably does not realise is that part of his savings will eventually be invested in companies such as Apple, Microsoft, Amazon, Nvidia or Coca-Cola. And there is another detail that he would hardly imagine: those shares will be managed alongside the savings of millions of people living on the other side of the world.

Without even knowing it, Marc takes part every month in one of the most profound transformations capitalism has undergone over the past half century. For decades, economic power had a very clear face. When people spoke about the automobile industry, it was impossible not to think of Henry Ford. Oil immediately brought John D. Rockefeller to mind. The Agnelli family represented Fiat, and even today Amancio Ortega remains closely associated with Inditex. The great entrepreneurs not only owned a significant share of their companies; they also ran them, assumed the risks and decided the direction in which they would move.

That model has not disappeared entirely. There are still major corporations controlled by their founders or by entrepreneurial families. But, without dramatic headlines or apparent revolutions, the centre of gravity of capitalism has gradually shifted. If today we look at the largest shareholders of Apple, Microsoft, Amazon, Alphabet, Coca-Cola or JPMorgan, we will discover that the same three names appear over and over again: BlackRock, Vanguard and State Street.

It is far too frequent a coincidence to be accidental. Yet its explanation has nothing to do with the conspiracy theories that often circulate on the internet. On the contrary, it is the result of a financial revolution that began with a surprisingly simple idea.

The man who challenged wall street

Our story takes us back to 1975. John Clifton Bogle had just founded a small asset management company called The Vanguard Group after being dismissed from Wellington Management. Rather than trying to prove he was better than the rest of Wall Street’s professionals, Bogle had reached a far more radical conclusion: perhaps the real problem was trying to prove it in the first place.

For years, he had watched leading fund managers devote enormous resources to identifying the companies that would deliver the highest returns. They hired analysts, examined balance sheets, visited businesses and developed sophisticated financial models in an attempt to outperform the major stock market indices. Yet, year after year, reality proved stubborn. Once fees had been deducted, most of them achieved results that were equal to—or even worse than—the market they were trying to beat.

Bogle decided to turn that logic upside down. Instead of trying to identify the best company of the future, he proposed buying them all.

The idea, which many analysts ridiculed at the time, would eventually become one of the most influential innovations in the history of finance. Today, almost fifty years later, Vanguard manages close to 10 trillion dollars in assets, an amount equivalent to several times Germany’s gross domestic product. It was not merely the success of one company.

It marked the beginning of a completely new way of understanding investment.

When investing stopped being a game for experts

Bogle’s idea was revolutionary because it dramatically simplified an activity that had previously seemed reserved for professionals. Imagine someone walking into a fruit shop determined to buy the very best fruit available. They can spend a long time selecting each individual piece they believe to be the finest, or they can choose a basket that already contains a balanced selection of seasonal fruit. Not every piece will necessarily be outstanding, but neither will the result depend on having made the perfect choice every single time.

Index funds work according to exactly the same philosophy. Instead of trying to predict which companies will grow the most, they buy every company that forms part of a particular stock market index. If the index is the S&P 500, the fund purchases shares in the five hundred largest companies in the United States. If it tracks the MSCI World Index, it invests simultaneously in thousands of companies spread across dozens of countries.

The result is a highly diversified portfolio, with costs far lower than those of traditional active management and which, according to numerous studies, tends to outperform a large proportion of actively managed funds over the long term.

This philosophy eventually spread far beyond Vanguard. Over time, virtually the entire financial industry began developing similar investment products.

The arrival of ETFs accelerated the revolution

The second major transformation arrived in the 1990s with the popularisation of ETFs, short for Exchange Traded Funds. Despite their technical name, the way they work is remarkably simple. An ETF is a fund that is traded on the stock exchange just like a share. When an investor buys a unit of one of these funds, they are not purchasing a single company, but rather a small share of a basket that may contain hundreds or even thousands of companies.

This small change had enormous consequences. For the first time, anyone could invest in a highly diversified portfolio, at very low cost and without having to follow the markets on a daily basis. What had once been reserved for wealthy investors became accessible to virtually any saver.

The figures illustrate the scale of the phenomenon. While ETFs represented an almost insignificant market at the end of the 1990s, they now manage more than 15 trillion dollars worldwide and continue to grow at a faster pace than many other financial products.

Three asset managers that grew alongside the world’s savings

While Vanguard was consolidating its commitment to index investing, another company was embarking on a very different path. In 1988, Larry Fink founded BlackRock after losing almost one hundred million dollars on a mortgage bond transaction while working at First Boston. That episode left him with a conviction that would define his entire career: before seeking returns, you must first understand risk.

That philosophy would eventually turn BlackRock into the largest asset manager on the planet. Today it manages approximately 11.6 trillion dollars, a figure so vast that only the United States and China generate a larger annual GDP.

State Street, for its part, had a much longer history. Founded in 1792, it played a decisive role in this revolution when, in 1993, it launched the first major modern ETF linked to the S&P 500. That product definitively demonstrated that investing in an index could be as simple as buying any other publicly traded share.

None of these companies set out to become the owners of global capitalism. Their objective was far more modest: to manage as efficiently as possible the money entrusted to them by millions of people. Yet precisely because millions of people began making the same decision, the outcome became extraordinary. Today, whenever we examine the shareholder registers of the world’s largest multinational corporations, their names appear over and over again. And this is where the most surprising part of the story begins.

The money is still yours. The influence, not so much.

When readers discover that BlackRock, Vanguard and State Street are among the largest shareholders of virtually every major Western corporation, it is easy to reach the wrong conclusion: that these three firms are the true owners of global capitalism. The reality is far more nuanced.

The owners are still millions of anonymous individuals. They are workers like Marc, who contribute part of their salary every month to a pension plan; families who save through an investment fund; universities, insurance companies, public institutions or small investors who purchase an ETF through their bank. All of them remain the ultimate owners of their savings.

What these firms do is something different. They manage those savings. The distinction may seem subtle, but it is essential to understanding how today’s financial system works. When a property owner hires a manager to administer a building, they do not cease to own it. Exactly the same applies to savings. The money still belongs to the investors, but its management is delegated to specialised institutions that decide how to allocate it across thousands of different assets.

This explanation dismantles many of the simplistic narratives that often circulate on social media. BlackRock, Vanguard and State Street have not purchased all the world’s major companies with their own money. They have grown because hundreds of millions of people around the world have independently reached the same conclusion: it is more efficient to delegate the management of their savings to large, diversified asset managers than to try to pick the winning companies themselves.

But that answer immediately raises another question. If the money still belongs to the investors, who exercises the rights attached to those shares?

The separation between ownership and power

This is, perhaps, the most profound transformation capitalism has undergone over the past few decades.

Throughout much of the nineteenth and twentieth centuries, ownership and power generally went hand in hand. Major shareholders were also the people who ran companies, appointed boards of directors and determined their major corporate strategies. Capitalism maintained an almost direct relationship between those who provided the capital and those who made the decisions. Today, that relationship is far more complex.

When an asset manager purchases shares on behalf of its clients, it also assumes, in most cases, the exercise of the voting rights associated with those holdings. This means voting at shareholders’ meetings, expressing positions on executive remuneration policies, approving the appointment of new board members and taking a stance on major strategic decisions.

This does not mean that BlackRock decides what the next iPhone will look like, or that Vanguard chooses which company Microsoft should acquire. Those responsibilities still belong to each company’s executive management and board of directors.

Their influence is much less visible, but also far more far-reaching. It can be seen in the way corporate governance is understood, in transparency standards, in sustainability policies and in the rules that simultaneously affect hundreds of major corporations.

It is a discreet form of power, exercised almost entirely away from the public spotlight, yet one that acquires an extraordinary dimension when the same asset manager holds stakes in thousands of companies across the world. Managing the savings of millions of people inevitably also means managing a significant portion of the voting rights attached to those savings. And doing so requires a technological capability that, only a few decades ago, would have seemed like science fiction.

Aladdin: The technology behind the management of trillions of dollars

Few tools have sparked as much curiosity as: Aladdin.

The name may evoke the character from the Arabian tales, but in reality it refers to one of the most sophisticated risk management platforms in the financial world. Larry Fink developed it with a very clear idea after losing almost one hundred million dollars in a single transaction during the early years of his career: before taking any risk, you must first understand it. That philosophy continues to define BlackRock today.

Aladdin does not buy shares or make decisions on its own. Its role is far less spectacular, yet infinitely more useful. It analyses millions of data points, simulates economic scenarios, calculates risks, identifies vulnerabilities and helps portfolio managers understand how an investment portfolio might react to rising interest rates, a trade war, an energy crisis or a global recession.

According to BlackRock itself, the platform supports the management of more than 21 trillion dollars in assets, used not only by BlackRock but also by banks, insurance companies, sovereign wealth funds and financial institutions around the world.

It is understandable that an infrastructure of this scale has fuelled all kinds of myths. Yet the reality is far less sensational than is often claimed. Aladdin does not control the financial markets. What it actually does is something much more pragmatic: it helps professionals make decisions in a financial system that moves amounts of money almost impossible to comprehend.

The debate that concerns universities and regulators

This phenomenon has not gone unnoticed. For years, economists, legal scholars and competition authorities have been analysing the consequences of this concentration in the management of global savings. The concept at the centre of much of the debate is common ownership—the presence of the same large institutional shareholders in companies that compete with one another.

The question is a legitimate one. If the same asset managers simultaneously hold significant stakes in the world’s leading airlines, banks or technology companies, could this reduce the incentives for those companies to compete more aggressively?

In 2018, economists José Azar, Martin Schmalz and Isabel Tecu brought international attention to this debate through a study of the U.S. airline industry. Their conclusions triggered an intense academic controversy that remains unresolved today.

Since then, institutions such as Harvard University, the National Bureau of Economic Research (NBER), the U.S. Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC) have examined the issue from different perspectives. Some studies suggest that common ownership could affect competition in certain sectors, while others argue that the available evidence is still not robust enough to support such a conclusion.

This lack of consensus does not diminish the importance of the debate. Quite the opposite.

It demonstrates that we are facing a new, complex and still evolving phenomenon that forces us to rethink traditional concepts such as ownership, corporate control and even competition itself. 

A revolution that almost nobody saw coming

When John Bogle created Vanguard in 1975, he could hardly have imagined that his idea would end up transforming global capitalism. His objective was far more modest: to offer small investors a more efficient, less expensive and more transparent way to invest their savings. In that respect, his revolution has been an extraordinary success.

Never before had it been so easy to invest in the world’s leading companies.

Never before had investment costs been so low. And never before had so many small savers been able to participate in the growth of the global economy without needing substantial wealth.

Yet every revolution produces unexpected consequences. As millions of people delegated the management of their savings, that management gradually became concentrated in the hands of a very small number of institutions. Not because there was a preconceived plan, but because the very mechanisms that made investing more efficient also favoured economies of scale.

It is this paradox that defines much of contemporary capitalism. Ownership has become more democratic than ever before. Management has become more concentrated than ever before. This is neither good news nor bad news in itself. Above all, it is a reality that must be understood before it can be judged. Perhaps, a few decades from now, historians will explain this transformation with the same naturalness with which they now explain the Industrial Revolution or the birth of the modern corporation.

Because, almost silently and with hardly any headlines, capitalism has changed one of its most fundamental rules.

The owners are still millions of ordinary people like Marc. But the hands managing an ever-growing share of their capital are becoming fewer and fewer.And this is where the great question that is likely to define the coming years begins. The question is no longer who owns the world’s largest companies. The question is far more profound.

Who makes decisions on behalf of the owners?

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