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Benjamin Braun is a political economist who is based at the Max Planck Institute for the Study of Societies (MPIfG) in Cologne. He holds degrees in political science and economics from the University of Munich and completed his Ph.D. at the University of Warwick and the Université Libre de Bruxelles. 

For issue #47 of The Internationalist, Braun sits down with David Adler to discuss his groundbreaking work on the rise of 'asset manager capitalism,' the impact of this new economic paradigm on ordinary households, and the global repercussions for issues like climate change.

David Adler: Let’s start with the basics of your research. What is an asset manager? And how did we end up in an economy that you define as ‘asset manager capitalism’?

Benjamin Braun: Asset manager is a term used to describe a financial firm, which is not a bank and therefore does not issue deposits. An asset manager manages other people's money. ‘Other people’, can be you and I, or institutional capital pools such as pension funds, sovereign wealth funds, and insurers.

There are different types of asset managers: The most common type is the mutual fund and index fund firm – companies such as BlackRock, Vanguard, and State Street. These firms mainly invest in publicly traded equities and bonds. These are, if you will, plain vanilla asset managers.

Then there are so-called 'alternative asset managers' such as private equity firms, hedge funds and venture capital firms. Some well-known private equity giants are Blackstone, KKR, Apollo, to name a few. They have roots tracing back to the 1980s, initially specializing in leveraged buyouts, purchasing, restructuring, and reselling companies, accumulating substantial profits in the process.

Since then, they have diversified their investment model. Today, for example, Blackstone is the world's largest institutional landlord. Private equity firms also acquire small local businesses, consolidating them into larger chains across various sectors, from local newspapers to clinics and care homes. They also increasingly invest in infrastructure of all kinds. Roads energy, again, increasingly, potentially green infrastructures.

Then there are hedge funds, which follow various kinds of investment strategies, placing bets on individual firms or macroeconomic trends. And then there are venture capital firms such as Sequoia, which invest in startup companies, and then make bets on a large number of startups hoping that one out of 50 will pay off and make a lot of money for investors.

All of these alternative asset managers are very lightly regulated. This leniency hinges on the notion that investors must possess a level of sophistication, primarily targeting high-net-worth individuals or institutional investors. So again, pension funds represent the largest client base for these alternative investment asset managers.

The best way to conceptualize how asset manager capitalism touches all of us is by recognizing that if you're in the upper half of the wealth distribution, you're directly impacted. If you are in this category and live in a country that has a funded pension system, such as the US, the UK, the Netherlands, or Scandinavian countries, your retirement income heavily relies on returns from pension funds managed by these asset managers.

If you find yourself in the lower half of the wealth distribution, where financial wealth is generally minimal, you're also directly impacted. These asset managers, notably mutual fund firms, overwhelmingly dominate ownership in all publicly listed companies, including those we work for or purchase goods from.

You might also encounter private equity firms if you reside in rental properties they own or utilize services such as healthcare, including hospitals and care homes, provided by private equity-owned companies. This pattern extends through virtually all consumer goods and infrastructure sectors. As Brett Christopher has convincingly argued in his recent book, the presence of asset managers as unseen owners of the companies and services we interact with has become quite pervasive.


DA: What are the implications of asset manager capitalism for ordinary households? Why should it matter to you and me?

BB: One way of looking at this is through the lens of political economy and the balance of power of the various groups in the economy. The main distinction is between capital and labour. What asset manager capitalism effectively accomplishes is the consolidation of power among wealth owners. The rise of the asset management sector has allowed wealth owners to combine several desirable elements that were historically challenging to unite. This includes portfolio diversification, liquidity of assets to safeguard against unexpected events within a single company or country, and the agility to respond promptly to global developments, reallocating funds across sectors and regions. Simultaneously, asset managers, acting on behalf of wealth owners, wield significant control over non-financial companies and, in the case of bond investors, even over entire countries, owing to their substantial size as institutional capital pools.

So asset managers allow wealth owners to combine diversification and liquidity on the one hand, and control on the other. One could argue that the rate of return on capital is likely higher with the presence of the asset management sector in its current size and influence compared to a hypothetical scenario where this sector does not exist. So that's that's one big-picture way of thinking about it.

DA: What are the implications for other issues say, on climate change? What is the record of firms like BlackRock there?

BB: One theory would be that because BlackRock and Vanguard are so large, they are essentially universal owners, meaning they are not just holding portfolios of some companies or making bets on specific companies outperforming the market. Instead, they have a stake in nearly every publicly listed company worldwide. Therefore, they should, in principle, internalise the negative external effects that arise from the conduct of individual corporations. This means they should theoretically prioritize corporate behaviours that are sustainable, enhancing the economy's profit rate while adhering to global agreements such as the Paris Climate Accord.

But in practice, we have not seen them use their power and corporate governance in this direction at all. And all the evidence so far, all the analysis of proxy voting behaviour show that the largest asset managers are the ones that are least likely to support shareholder resolutions that are about climate change. There are some exceptions; for instance, Pimco, owned by the German insurer Allianz, actively supports environmentally themed shareholder resolutions. So there are interesting differences. But by and large, the largest US asset managers have been extremely reluctant to wield their power beyond rhetoric, in a way that would be consistent with the ‘universal ownership’. So these companies, the largest asset managers, have been very reluctant to wield power in a green way.

And then of course, there are the alternative asset managers; there the evidence is even worse, and private equity companies in particular have made lots of investments in recent years in fossil fuel assets. And they may increasingly gobble up these companies as publicly traded asset managers increasingly shy away from them for various reasons.

DA: What is the geography of asset manager capitalism? Is it a coincidence that many of these firms hold their headquarters in New York, USA? What does it mean for countries in the Global South?

BB: Let's start with the question about why asset manager capitalism is so U.S.-centric. That's not a coincidence, it's by design, primarily owing to the significant U.S.-funded pension system. Around two-thirds of the global pension and retirement assets are from the US pension system. So that's the single largest capital pool that is managed by the asset management sector. It makes sense that that is where a very large asset management sector emerged in first place leading to the US becoming the world's leading asset management centre.

Looking at the global impact from two perspectives, firstly, where these existing asset managers seek growth. The most substantial opportunities for them lie in the U.S. and China. And China is in the process of building up a pension system with a funding component or pre-funded component. Asset managers have for years tried to gain a foothold in China, in order to be in a position to manage what will be a pension system that at one point will probably supersede the size of the US. But that's a long way away. It's very uncertain if that will work out for them. It is very interesting to see that Wall Street hasn't adopted a hawkish stance towards China, even when other segments of U.S. business have adopted such stances.

The largest US asset managers are the largest shareholders in listed companies in pretty much all advanced economies today. Increasingly, they hold significant stakes in large companies within emerging market economies as well. And they are very powerful bondholders. And these asset managers do not just run equity funds, they also offer bond funds. In cases where a nation encounters difficulties with its sovereign debt and negotiations regarding debt restructuring ensue, it's usually the world's largest asset managers that private creditors align with or mobilize through. These asset managers, including industry giants like BlackRock and Pimco, play a pivotal role in facilitating the coordination of international private creditors. This concentrated coordination can apply substantial pressure on sovereign debtors. Imagine an alternative scenario where bond holdings are more dispersed among numerous smaller foreign creditors; it would be challenging for them to coordinate and exert pressure on countries in a similar manner.

DA: What is to be done? What do you think is our way out of the traps of asset manager capitalism and toward a more equitable, sustainable, and democratic economy?

BB: It is difficult to even imagine, at this point, an alternative configuration within capitalism, as it is currently organised. There are these very large institutional capital pools that are hardwired into society – that’s just how pension systems are organised. And there's no way to easily change that.

That also links to the main reason why I think this configuration is problematic. It shores up the position of capital versus labour, because, first, these asset managers are large and powerful, and facilitate coordination on the capital side. And, second, because they can represent themselves as representing and in fact, do represent to some extent, the interests of institutional capital pools, the interests of pension funds, and therefore the interests of, let's say, middle-class savers.

It is true that neoliberalism has extended asset ownership deep into the middle class. So any question about how can we move on from this to something else needs to think very seriously and consider alternative ways of organising pension systems. That's the elephant in the room of this debate. I argued in a previous piece that progressive-minded individuals in the U.S. should consider a more radical alternative—a pay-as-you-go pension system. In such a system, the state redistributes pension contributions from the young to the old without financial intermediaries, thus avoiding the need to invest trillions of dollars to fund pension payments from investment returns.

Another radical option would be to recognize that much of the money managed by asset managers are quasi-public money, including pension assets, endowments, and foundation assets. And therefore, if we have to have these huge capital pools, then at least the asset management function should be socialised. This idea, termed a 'public option for asset managers' by Lenore Palladino, isn't as far-fetched as it may seem. The ideological justification for the shareholder value regime that puts a lot of power in the hands of shareholders, is that shareholders are the ultimate stakeholders in the corporation and they know best where to allocate capital in the economy. However, under asset manager capitalism, dominant shareholders like BlackRock, Vanguard, and State Street don't fulfil this role. They largely invest in the largest companies through index funds. There's a compelling argument for a public alternative.

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