Who owns and profits from the lethal and corrupt activities of Big Pharma? If you have retirement savings, ,chances are it is you!
There have been a lot of accusations flying around about the evils perpetrated on people by the largest fund managers in the US.
So I thought I would bring a little clarity to the debate by highlighting a few salient points.
I should stress that this piece does not contain any investment advice. Should you wish to refocus your investments away from big pharma or Pfizer and Moderna in particular, you should consult your investment advisors on whether, how and what to do.
Many Americans save for retirement. They do this either directly, by holding investments in their own names, or, indirectly, by paying someone else to do it. Owning investment products via mutual funds, or ETF’s or 401k plans or target date funds or company pension schemes means the chances are high that you own Pfizer and Moderna in your retirement savings accounts The fund managers who run these funds are NOT the owners of the Pfizer shares – you are.
How big are the investments in the US retirement market?
From this (undated) McKinsey report, it is huge, really huge:
Long-term value creation in US retirement (mckinsey.com)
From page 2 of 11:
“Retirement is and will continue to be one of the largest growth opportunities for wealth managers, insurers, and asset managers. Recent estimates by the McKinsey Global Institute show retiring and elderly individuals in the developed world will contribute more to global consumption growth through 2030 than will Chinese consumers aged 15 to 59. Not surprisingly, leading firms from across the financial services industries are seeking to tap into this long-term growth opportunity.”
Here's the huge number:
“he largest retirement market is the United States, which contains $26 trillion in assets held in retirement-related accounts, including public and private defined contribution (DC) and defined benefit (DB) plans, IRAs, and annuities. These accounts collectively support more than $430 billion in revenue for retirement recordkeepers, asset managers, wealth managers, annuity writers, and life insurers, according to McKinsey “
Twenty six trillion dollars – just for the USA – which probably represents around a third of the size of the global retirement market.
There are other sources of funds that require deployment in the US and the rest of the world’s capital markets, from the activities of banks, companies and central banks seeking to maximise the return from assets whilst reducing the cost of liabilities. Governments around the world have a never ending demand for money that they never intend paying back, ever. These governments also are “owned” by “we the people”. So there profligate proclivities are out profligate proclivities since we vote for them to borrow to fund government spending beyond the taxes we pay.
Ok, who are the largest US based investment managers? Let’s look at 4 of the largest:
Using data sourced from here:
BlackRock (BLK) - Market capitalization (companiesmarketcap.com)
American Vanguard (AVD) - Market capitalization (companiesmarketcap.com)
Fidelity National Financial (FNF) - Market capitalization (companiesmarketcap.com)
State Street Corporation (STT) - Market capitalization (companiesmarketcap.com)
And getting approximate Assets managed from internet searches that answer the question “how much money is managed by Fidelity” and so on.
The webs site that provides the market capitalization of, for example, Vanguard says that its share price is down 53% in the last year, so this data 3needs careful vetting!!!
The table shows the assets managed by each fund manager, the market capitalisation (the value of the fund manager after all profits earned over the decades LESS dividends paid and the market value of assets and liabilities.
The 26 trillion total and the total size of the retirement market above is purely coincidental.
From the table, BlackRock manages 10 trillion bucks and has a market capitalization of 97 billion bucks. The value of its assets under management is 100 times its market capitalization. Here is the key point. The assets managed by BlackRock do not belong to BlackRock – they belong to their clients and are managed on an AGENCY basis and BlackRock’s discretion is controlled by investment management agreements and trust deeds, with which it must comply.
Around half of BlackRock’s funds are “passive” funds that mechanistically track an index or which invest in cash markets with limited discretion as to maturity, credit quality and liquidity. That still leaves 5 trillion that are “actively” managed against a market index such as the S&500 or an investment grade bond index or some combination of many market indices into a benchmark.
Fees for “passive” management are around 5-10 basis points a year (0.03% to 0.10% p.a.) – compared to fees for “active management that are typically around 30 basis points per annum, but can be 50-150 basis points per annum, depending on the complexity of the targeted investment market, the costs of doing business and the performance target.
A typical performance target for an “actively managed” fund might read “to outperform the S&P500 by an average 0.75% per annum over a rolling three to five year period, with an average tracking error (risk) of 1.5% per annum AFTER FEES!. A passively managed fund target might read “match the return against the S&P500 with minimal tracking error after fees”
Fund managers have no direct liability for failing to meet performance targets. They simply get sacked if they perform consistently poorly.
The rewards for performing well are enormous. A quarter of a percent in a single year for a billion dollars of funda managed is 2.5 million bucks – for a trillion it is 2.5 billion bucks.
Vanguard and State Street manage mainly passive equity, bond and money market funds. State Street has an additional significant line of business that provides safe custody of all sorts of investments – fund managers use State Street to story the records of what investments they are responsible for.
Ok, so far so good. What has not been detailed is the number and type of “products” that the investment managers offer. There are literally thousands of them. From 401l plans, to target date funds to sector specific or broad market indices. These products can be called vehicles. Vehicles that carry passengers who are clients of the fund manager.
Right, so now let’s look at the largest investors in Pfizer and Moderna – similar analysis could bone for AstraZeneca, JnJ and BioNTech, but we will stick to these two.
Largest shareholders of Pfizer
From here: Pfizer Inc. (PFE) Stock Major Holders - Yahoo Finance
From here: S&P 500 Companies by Weight (slickcharts.com) Pfizer is the 36th largest weight at 0.5% of the S&P599, so passive managers must hold this weight in indices that track the S&P500 – same goes for any other index in which Pfizer is represented.
If Vanguard had half a billion shares in Pfizer on 30 June 2023 when the price was 36.21 the market value of Vanguard’s holding of Pfizer was around 18 billion. As the market weight of Pfizer in the S&P500 is around 0.5%, the market value of ALL Vanguard passive funds investing in the S&P500 will be around 2 trillion bucks (10 billion divided by 0.5%). The remaining 6 trillion (out of 8 trillion in total funds managed passively by Vanguard) will be in money market, bond and other equity funds replicating indices.
Now, who are the investors in Vanguard? Who are its clients? Well, it has millions of retail and hundreds of corporate clients, investing in 100’s of its products. In a past life I researched and analysed its offerings in money market, bond and equity markets, its target date funds and other “vehicles” on a regular basis in the US, so that it could be stacked up against competing managers. A client profile was provided every three months – breaking down inflows and outflows by client type and size.
I was going to do a similar top-down view of each of the other 3 top managers in that table with 26 trillion bucks in total – but this is getting too much like work that my past employer used to charge a lot to do on an absolute per manager basis and a relative basis to competition so I won’t continue!
What I hope this does is at least allow people to focus any criticisms of Vanguard and other large fund managers.
These fund managers compete with each other to secure large rewards. Should they act outside their investment management agreements or underperform they will be sanctioned and fired. Their competition will not hesitate to “whistle-blow” miscreants in a fund manager and these managers are constantly monitored by consultants for bad behaviour..
I will leave you with a couple of thoughts – “Proxy voting” and “Treasury Stock” – areas where a fund manager might exert control of a company like Pfizer.
Proxy voting from here:
“Here is an Investopedia article describing a proxy vote
What Is a Proxy Vote, and How Does It Work? With Examples (investopedia.com)
Referring back to the nine page Guidance document - Page 6 of 9 – says this:
“The Commission explained that an investment adviser may agree with its client to the scope of voting arrangements but that scoping the relationship requires the investment adviser to make full and fair disclosure and the client to provide informed consent.”
“Further, rule 206(4)-6 and Form ADV require an investment adviser to describe to clients its voting policies and procedures.”
“In light of the above, we believe that an investment adviser that uses automated voting should consider disclosing: (1) the extent of that use and under what circumstances it uses automated voting; and (2) how its policies and procedures address the use of automated voting..”
An investment manager cannot cast a vote at a company general meeting without INFORMED CONSENT – sound familiar?”
Treasury stock – not owned by investment managers, but the accumulated purchase of stock by the company itself. Does Pfizer vote with its Treasury stock to set company policy or does this simply remove stock from the market?
Onwards!
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That was a real good one. Who enables Pfizer? Look in the mirror.
Not directly related to your article, but sort of - "The Great Taking" by David Webb https://thegreattaking.com/ interviewed here https://rumble.com/v3krz2z-david-webb.html - "It is about the taking of collateral (all of it), the end game of the current globally synchronous debt accumulation super cycle. This scheme is being executed by long-planned, intelligent design, the audacity and scope of which is difficult for the mind to encompass. Included are all financial assets and bank deposits, all stocks and bonds; and hence, all underlying property of all public corporations, including all inventories, plant and equipment; land, mineral deposits, inventions and intellectual property".
I'd be interested in your opinion. He's from similar background to you I think. If what he says is true, we're doomed. I only watched the interview but have down-loaded the book (which is free) to read later.