Asset manager capture
This research examines “reverse capture”, where government actors pressure large asset managers to advance political agendas. It analyses how expanding presidential power and market concentration enable this dynamic, using the ESG retreat as an illustration. The authors recommend narrowing fiduciary duties to insulate investment stewardship from political interference.
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OVERVIEW
Introduction
This research identifies a novel and pressing risk in corporate governance termed “reverse capture”. While conventional concerns focus on asset managers capturing the government to secure favourable regulation, this article describes how government actors can deploy regulatory leverage to compel the largest asset managers to advance the government’s policy agenda. This dynamic is exacerbated by the rise of presidential power over the federal government and the concentrated ownership held by the “Big Three” asset managers—BlackRock, Vanguard, and State Street Global Advisors.
The rise of asset manager and presidential power
The research traces the parallel rise of institutional asset manager ownership and presidential authority. The growth of the mutual fund industry, accelerated by the 1974 enactment of ERISA, has led to a market dominated by a small number of managers. By 2015, the Big Three together constituted the largest shareholder in 90% of public companies in the S&P 500, up from 25% in 2000. Their 20% average ownership interest culminates in approximately 25% average voting power at S&P 500 companies.
Concurrently, presidential power has expanded through increased reliance on executive orders and the erosion of agency independence. Recent developments demonstrate an unprecedented willingness by the White House to intervene in areas traditionally insulated from political direction, such as the Federal Reserve and private firm ownership. The administration has utilised tools like the Office of Management and Budget (OMB) to advance regulatory or deregulatory agendas and has sought direct interference with firms’ contractual arrangements and strategic choices.
Asset manager capture
The government employs several tools to capture asset managers. One channel is “diminishing voice”, where regulatory changes discourage activism. For instance, in February 2025, the SEC issued guidance suggesting that Schedule 13G might be unavailable to shareholders recommending specific social or environmental actions, leading firms like BlackRock and Vanguard to temporarily halt shareholder engagement. Legislative proposals like the INDEX Act also seek to neutralise the dominance of the Big Three by requiring beneficial owners to provide explicit voting instructions.
More potent tools include threats to the asset manager’s business model, such as potential breakup requirements, limits on holdings in regulated sectors like banking or utilities, and designation as systemically important financial institutions (SIFIs). Conversely, the government offers benefits to align managers with its agenda. Examples include the “democratising” of private markets by allowing 401(k) accounts to invest in private equity and the creation of tax-advantaged “Trump Accounts” for children under the One Big Beautiful Bill Act (OBBBA), which provides new sources of assets under management.
The ESG example
The rapid shift in ESG (environmental, social, and governance) investing illustrates the risk of reverse capture. Following an initial push for climate-related disclosures starting in 2018, asset managers faced significant political pressure and threats of litigation from various state and federal actors. By 2024 and 2025, a “green retreat” occurred, with major firms exiting investor associations like Climate Action 100+ and the Net Zero Asset Managers alliance. This reversal suggests that stewardship priorities are vulnerable to political pressure rather than being solely driven by fiduciary duties or investor interests.
Implications
Asset manager capture presents several risks, including the misalignment of interests between savers and fund managers. When managers choose stewardship policies to mitigate regulatory risk, they may prioritise their own business interests over client returns. This dynamic also undermines democratic accountability by allowing the government to pursue policy through concentrated private intermediaries rather than transparent legislative channels.
Geopolitically, the vulnerability of U.S. managers to domestic political pressure threatens their international competitiveness. Foreign asset owners may recognise that U.S. managers tailor stewardship to accommodate American executive branch preferences, potentially triggering regulatory backlash abroad and accelerating the deglobalisation of financial intermediation.
Conclusion
To mitigate these risks, the authors propose a simple policy change: a narrower interpretation of asset manager fiduciary duties. By limiting discretion to the pursuit of maximising financial returns, it becomes easier for courts and clients to hold managers accountable and reduces the likelihood that government pressure will shape stewardship decisions. Structural reforms, such as pass-through voting and limiting the size of the largest managers, could also reduce susceptibility to governmental co-optation.
