How 401(k) Plans Are Taking Over the Stock Market

More Americans than ever are saving for retirement, and an increasing number of them are doing this through investments in 401(k) plans. This trend has brought about a significant change in the investment landscape, as power on Wall Street has become concentrated among four major asset managers: BlackRock, Vanguard Group, Fidelity Investments, and State Street Global Advisors. 

BlackRock manages around $9 trillion in assets, while Vanguard oversees $7.2 trillion. Fidelity handles $4.2 trillion and State Street manages $3.5 trillion. Collectively, these four companies control assets that amount to 65% of the total value of shares in the S&P 500.

Vanguard, in particular, holds the position of being the largest owner of two-thirds of S&P 500 stocks. These companies could potentially possess over 40% of all shareholder votes within the S&P 500 in the next twenty years.

When an investor owns shares in a company, they become a shareholder or part-owner of that company. Shareholders enjoy certain rights and privileges, including the right to vote on matters related to the company's operations. Shareholder voting grants investors a voice in significant company affairs, influencing its actions and direction.

Through a process known as proxy voting, large asset managers can vote on shareholder resolutions on behalf of their clients. This means that as firms like BlackRock and Vanguard acquire more clients, they also gain more control over voting decisions. 

Asset managers wield substantial influence over company practices. For example, last year these four major managers supported only 20% of environmental and social resolutions, a decline from the 32% support they provided in 2021.