If Not the Index Funds, Then Who?

Abstract

Large asset managers manage trillions of dollars of assets on behalf of tens of millions of clients. In this article, I take a close look at the underlying interests of those clients. Because asset managers’ clients are affected by corporate actions as customers, employees, creditors, taxpayers, and the general public, they are interested in more than the financial performance of the corporations in their portfolios. Instead of maximizing the profits of individual firms, an asset manager acting in their clients’ best interests should instead focus on improving the alignment between corporations and society more broadly. I show that asset managers can induce significant changes at portfolio companies. I then put forward a set of actions that asset managers could implement that would significantly increase clients’ collective welfare. Finally, I show that there is little legal risk from a reorientation towards client welfare by asset managers.