Between a Blackrock and a Hard Place

The word ”mutual” has its place in society. It represents a collective thought. A shared common interest. All for one and one for all sorts. Kind of a refreshing term in modern times. As you’ve heard me quote before,” there’s no solutions, only trade offs”. And this couldn’t be a better example.

The company was founded in 1924 by Sherman Adams, Charles H. Learoyd and Ashton L. Carr. The company's oldest fund is the Massachusetts Investors Trust, a mutual fund created with $50,000 at the company's inception and reported to be "the world's first open-end investment fund". The company used "brokerage channels" to market its shares to the public and later expanded to $14 million in assets over the next five years. During the stock market crash of 1929, the fund survived an 83% loss and went on to create a second fund in 1934. By 1959, the Massachusetts Investors Trust fund had become the largest mutual fund in the United States.

Today this mutual fund company manages 650 billion in assets. And it doesn’t ever crack the top ten largest mutual fund companies in America. So what? A successful mutual fund company. What’s the big deal??

Mutual funds and how they work

To understand the problem we must first define what a mutual fund is.

Mutual funds combine money from many investors to buy a variety of investments. Professional managers decide which investments to buy and sell for the fund. A professional fund manager handles this mix of investments, and its assets and goals are detailed in the fund's prospectus. These funds hold much of the retirement funds of middle-income Americans, but this wasn't always the case. In 1980, under 6% of U.S. households had money in mutual funds.

By 2023, about 52% of American households were invested in them, and these households held shares for a vast majority, 88%, of all mutual fund assets.

Mutual funds were an instrument originally created to give the little guy access to investment he or she couldn’t achieve on their own. It's pretty hard to buy 100 shares of Nvidia if you only can invest 1,000 a month. Nvidia currently trades around $900 a share. And you wouldn’t want to have all your eggs in one basket. So then came the mutual fund to rescue the middle class.

But what could possibly be a problem with that? There's an old saying that goes, “When the shit gets bigger than the rabbit, you killed the rabbit”.

The problem lies in the structure of a mutual fund. It’s a pool of investors, like yourself, whom 70% of the time you are introduced to these funds by way of your employment benefit package. Not really knowing any details about who is managing the fund itself. If you have a 401k, IRA, 403b, chances are you’ve heard of Fidelity, BlackRock, Vanguard, State Street, or Capital Group. These are all publicly traded corporations who make the decisions on how, why, and when to invest your money.

Now these names may carry a friendly connotation. After all, they are just merely helping you retire right? So these guys rarely ever get any negative publicity. The source of your anger is usually pointed in the direction of hedge funds and private equity funds. Now these are similar to a mutual fund in the way they are organized. They are pooled investments with an investment manager to select the variety of assets. But one key difference is in order to become an investor in a hedge fund or private equity firm, one must be someone with a net worth of 1 million or more and earn in the top 1% of earners. These funds employ the best the world has to offer in talent. And their tactics and methods are not only original, but they are creating and setting new market trends that your mutual fund investment manager usually tries to follow. They are known for being bloodthirsty investors that just want to see a profit no matter who or what is the cost. They’ve been blamed for the housing bubble and even more for inflation.

And yet they are not what’s wrong in today’s investment world. They are merely a fraction of the problem but get 90% of the blame. Today, the total hedge fund assets under management represents 2.7 trillion US dollars. Private equity firms' total assets represent 460 billion US dollars. With the total US stock market capitalization stands at 50 trillion dollars. We can see they are just a drop in the bucket. But what should raise your attention is the assets under management of your friendly mutual fund companies. Just the top 5 mutual fund companies control 35.7 trillion dollars in the stock market. That’s 70% of the total US stock market!

So why is this a problem?

The top 5 mutual fund companies control 70% of the US stock market. They are on the boards of every corporation they are invested in by shareholders value and none of the executives did this with their money. None of the assumed power is by way of any efforts of their own. But more so by way of the seemingly small power each one of you possess every time you contribute to your retirement plans. A small few have the power to influence board representation, which gives them the power to influence the direction of a company. It even gives companies with whom they want to garner the attention of the big mutual funds to behave in a manner that is appealing to the CEO’s of these mutual funds companies. And this is how it's done.

ESG(environmental, social and governance)

In 2004, the term “ESG” became official after its first mainstream appearance in a report titled, “Who Cares Wins.” The report illustrated how to integrate ESG factors into a company’s operations, breaking down the concept into its three basic components: environmental, social and governance (or corporate governance).

In the decade that followed, more principles and frameworks were created, providing further guidance on how companies can integrate and report on ESG factors. Some prominent examples include the Principles for Responsible Investment (PRI), the Climate Disclosure Standards Board (CDSB) and the Sustainability Accounting Standards Board (SASB). Today, companies and investors still rely on these principles and frameworks.

ESG investing created new capital to go into new funds that for the first time in the investment world history wasn’t about how much of a return you gave. More or less it was about if you behave in a manner socially acceptable by the ESG rating agencies. Agencies that are backed and funded by the very same mutual fund companies themselves.

If you are wondering why this is a problem, well let’s ask Benoit Garbe. A former US chief marketing officer of Anheuser-Busch InBev’s.

Whether or not you oppose or agree with the lifestyle of Dylan Mulvaney or not we should all agree that if your product has a core target audience, it should always meet the demands of those who are using the product or service and not those who spectate on such. Think about how many blue collar workers that manufacture the beer, distribute to vendors and those who lost their jobs due to the sales that were halted. Tone death isn’t accurate enough. But why did AB InBev make such an unorthodox decision? You guessed it! Chasing ESG funds.

Mmmm, smells like hypocrisy

Hypocrisy is something that exists amongst us all but none more than the leadership of BlackRock. With all their climate change initiatives one would believe that they are in no way interested in oil. The spearhead of all EV investment is also the second largest oil investor worldwide. The world’s three largest money managers have built a combined $300bn fossil fuel investment portfolio using money from people’s private savings and pension contributions, the Guardian can reveal.

BlackRock, Vanguard and State Street, which together oversee assets worth more than China’s entire GDP, have continued to grow billion-dollar stakes in some of the most carbon-intensive companies since the Paris agreement, financial data shows.

Kanye West coined the phrase ”No one man should have all that power”

And I'd bet my last dollar that the majority of Americans didn’t know they gave away such power. It is not the power itself that bothers me. But rather the means in which they obtained it. You see I am a general partner in a private equity firm founded by me and my partners. Which means everyone of our clients are high net worth individuals. And we have to prove our worth in order for those individuals to even believe in our ideas. After all, there aren’t many idiots in the high net worth category.

But companies like BlackRock, Vanguard and Fidelity target the little man. Knowing they have little defense and use the collective power of many for the interest of just a few. So if you look around and wonder why the world changed so fast and in a direction that appears self-destructive, well you get what you paid for. You are financing the destruction of American values. The last thing the elite class wants you to know, is that the same power they use to control was given to them by you. So before you rush down to your local voting booth this season, make a stop at your HR office and vote with your dollars first. Because if a dollar isn’t worth a dime today...maybe it's time to demand your change.

The CEO of Blackrock says his investment in oil is to be able to impact and affect change in corporations for the climate change initiative. But that's like your pastor saying I'm only at the strip club because I'm here to make a change. Wouldn't the right statement be to avoid them at all costs?

But I guess like the pastor at the strip club, he's trying to catch them coming and going.