EU: Lawmakers target index fund managers on “common ownership”

According to a report from the Financial Times, European lawmakers have taken aim at the influence of the largest index fund managers.

Passive funds have enjoyed dramatic growth, with assets hitting US$9 trillion in 2018, according to the trade body, Investment Company Institute, the FT added. Big passive managers own shares in most large companies and this has led to concern over antitrust issues.

Common ownership, a theory developed by several US and international academics, claims that passive managers’ stakes in multiple companies in one sector incentivizes them to constrain competition.

Last week the European Parliament cited OECD research and warned that higher levels of common ownership result in “hidden social cost and reduced product competition.”

Sven Giegold, a member of the Green party of the European Parliament, said the “dramatic change in the asset management industry” posed dangers to the market economy. “The effects of [large passive funds] have to be taken into account and regulated,” he told the Financial Times. He called for action from the European Commission. Margrethe Vestager, EU Competition Commissioner, last year began looking into whether common ownership impinged on competition. That inquiry has yet to result in policy action.