- Bill Ackman spends a considerable portion of Pershing Square's annual letter decrying the rise of indexing. He notes index funds accounted for nearly 20% of all dollars invested in the market last year, up from 10% fifteen years ago. A check of the registry of corporate America finds Vanguard, BlackRock (NYSE:BLK), and State Street (NYSE:STT) as nearly always the top three shareholders.
- Index managers, of course, are compensated not on performance, but on AUM, and they're judged on how well they track the index and the size of their fees. This creates a governance issue, says Ackman, It's an impossibility for fund managers to keep a close eye on the companies they own, and even further, what would be the point? Their job is to track an index and keep costs down.
- Should the trend continue, the U.S. system risks becoming like that of Japan's keiretsu (cross corporate ownership) which has been blamed for being a large part of that country's decades of economic malaise.