None other than Vanguard founder Jack Bogle, widely regarded as the father of the index fund, is raising the prospect that too much money is in too few hands, with BlackRock, Vanguard and State Street Corp. together owning significant stakes in the biggest U.S. companies.

"That’s about 20 percent owned by this oligopoly of three," Bogle said at a Nov. 28 appearance at the Council on Foreign Relations in New York. "It is too bad that there aren’t more people in the index-fund business.”

Vanguard is poised to parlay its $4.7 trillion of assets into more than $10 trillion by 2023, while BlackRock may hit that mark two years later, up from almost $6 trillion today, according to Bloomberg News projections based on the companies’ most recent five-year average annual growth rates in assets.

Those gains in part reflect a bull market in stocks that’s driven assets into investment products and may not continue.

Investors from individuals to large institutions such as pension and hedge funds have flocked to this duo, won over in part by their low-cost funds and breadth of offerings. The proliferation of exchange-traded funds is also supercharging these firms and will likely continue to do so.

Global ETF assets could explode to $25 trillion by 2025, according to estimates by Jim Ross, chairman of State Street’s global ETF business. That sum alone would mean trillions of dollars more for BlackRock and Vanguard, based on their current market share.

"Growth is not a goal, nor do we make projections about future growth," Vanguard spokesman John Woerth said of the Bloomberg calculations.

While bigger may be better for the fund giants, passive funds may be blurring the inherent value of securities, implied in a company’s earnings or cash flow.

The argument goes like this: The number of indexes now outstrips U.S. stocks, with the eruption of passive funds driving demand for securities within these benchmarks, rather than for the broader universe of stocks and bonds.

That could inflate or depress the price of these securities versus similar un-indexed assets, which may create bubbles and volatile price movements.

Stocks with outsize exposure to indexed funds could trade more on cross-asset flows and macro views, according to Goldman Sachs Group Inc. The bank found that, for the average stock in the S&P 500, 77 percent might trade on fundamentals, versus more than 90 percent a decade ago.

That’s not BlackRock’s experience. “While index investing does play a role, the price discovery process is still dominated by active stock selectors,” executives led by Vice Chairman Barbara Novick wrote in a paper in October, citing the relatively low turnover and small size of passive accounts compared with active strategies.

Another concern is that without the prospect of being part of an index, fewer small or mid-sized companies have an incentive to go public, according to Larry Tabb, founder of Tabb Group LLC, a New York-based firm that analyzes the structure of financial markets.

That’s because their stock risks underperforming without the inclusion in an index or an ETF, he said. Benchmarks are governed by rules or a methodology for selection and some require that a security has a certain size or liquidity for inclusion.

We’re not near a tipping point yet. Roughly 37 percent of assets in U.S.-domiciled equity funds are managed passively, up from 19 percent in 2009, according to Savita Subramanian at Bank of America Corp.

By contrast, in Japan, nearly 70 percent of domestically focused equity funds are passively managed, suggesting the U.S. can stomach more indexing before market efficiency suffers.

There’s even further to go if you look globally: Only 15 percent of world equity markets — including funds, separately managed accounts and holdings of individual securities — are passively managed, said Joe Brennan, global head of Vanguard’s equity index group, in an interview.

BlackRock and Vanguard’s dominance raises questions about competition and governance. The companies hold more than 5 percent of more than 4,400 stocks around the world, research from the University of Amsterdam shows.

That’s making regulators uneasy, with SEC Commissioner Kara Stein asking in February: “Does ownership concentration affect the willingness of companies to compete?”

Common ownership by institutional shareholders pushed up airfares by as much as 7 percent over 14 years starting in 2001 because the shared holdings put less pressure on the airlines to compete, according to a study led by Jose Azar, an assistant professor of economics at IESE Business School.

BlackRock and Vanguard are among the five largest shareholders of the three biggest operators.“As BlackRock and Vanguard grow, and as money flows from active to large passive investors, their percentage share of every firm increases,” said Azar in an interview. “If they cross the 10 percent threshold, I think for many people that would make it clearer that the growth of large asset managers could create serious concerns for competition in many industries.”

BlackRock has called Azar’s research “vague and implausible” while other academics have questioned his methodology.One of those is Edward Rock. A law professor at New York University, Rock says a variety of legal rules in fact discourage stakes above 10 percent and he favors creating a safe harbor for holdings up to 15 percent to incentivize shareholder engagement.

The firms are among the biggest holders of some of the world’s largest companies across a range of industries including Google parent Alphabet Inc.and Facebook Inc. in technology, and lenders like Wells Fargo & Co.In the U.S., both companies supported or didn’t oppose 96 percent of management resolutions on board directors in the year ended June 30, according to their own reports.

“We’ve put more and more efforts behind it but we’ve always had a substantial effort,” said Vanguard’s Brennan. “We’re permanent long-term holders and, given that, we have the strongest interest in the best outcomes.”

Their size could also help companies change for the good. Both firms were among the first to join the Investor Stewardship Group, a group of institutional asset managers seeking to foster better corporate governance, according to the organization’s website.

Vanguard has doubled its team dedicated to this over the last two years and supported two climate-related shareholder resolutions for the first time.

BlackRock has more than 30 people engaging with its portfolio companies. Active managers will be watching these developments closely. While many concede that stemming the passive tide is a challenge, they may see better days as central banks start unwinding a decade of easy monetary policy that’s sapped volatility.

Data show performance among active managers is improving. Some 57 percent of large-cap stock pickers underperformed the S&P 500 in the year ended June 30, compared with 85 percent the year before, data from S&P Dow Jones Indices show.

And if indexing distorts the market so much that it’s easier to beat, more investors will flock to stock pickers, says Richard Thaler, Nobel laureate, University of Chicago professor and principal at Fuller & Thaler Asset Management.

Right now, though, the duo’s advance appears unstoppable, and the benefits they’ve brought with low-cost investments may outweigh some of the structural issues."Given that they’ve grown so big because their fees are so small, these are the kinds of monopolies that don’t keep me up at night," said Thaler.

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