The United States has the deepest and most diverse capital markets in the world. These markets allow entrepreneurs to start new ventures, existing businesses to grow and adapt, and save investors for the future. They also support US job creation and retirement security for millions of Americans.
One of the most common and widespread investment management tools is the practice of investing in a range of assets of similar companies in a single sector. Millions of American investors benefit from this practice, which offsets the risk of investing in a single company, thereby reducing portfolio volatility. Very popular investment products such as Exchange Traded Funds (ETFs) are a common example, many of which are managed by large institutional investors on behalf of their clients.
Unfortunately, there is an emerging criticism from some in the federal government, as well as academics, that this practice, dubbed “common ownership,” poses a threat to the American economy by reducing competition in the marketplace.
The US Chamber is evaluating these claims in a recent report on the impact of common ownership. Our research has found that, contrary to the concerns expressed about reducing competition, the practice of common ownership both promotes stability and improves the performance of publicly traded companies.
Does shared ownership harm competition?
Available scientific evidence shows that shared ownership does not hamper competition. Recent academic studies have found no correlation, let alone causation, between common ownership and higher prices.
For their part, federal regulators agree that there is no compelling evidence that common ownership inhibits competition. During lengthy remarks in 2018, Federal Trade Commission (FTC) commissioner Noah Philips said, in part, “The large institutional investors do not appear to be at the forefront of a massive cartel conspiracy.”
Other law enforcement officers agree. In late 2017, US antitrust authorities claimed in a joint statement to the Organization for Economic Co-operation and Development that they had not found sufficient “evidence of anti-competitive effects” from common owners “to make changes to their policies or practices with respect to common ownership.” by institutional investors.”
Restricting shared ownership would harm capital markets and investors
Despite the fact that there are no discernible competitive implications, there are efforts in Washington, DC to raise common ownership as a regulatory issue in its funds under management to determine whether the institution held a high enough percentage of the assets to warrant a reporting requirement trigger under the Hart-Scott-Rodino Act. If promulgated, this rule would delay the closing of investment opportunities and dramatically increase review times and filing fees — fees that are ultimately borne by the millions of individual investors who use financial services.
Ultimately, efforts to limit shared ownership would hurt capital markets, businesses and investors by increasing the cost of raising capital for companies (particularly new and smaller companies), increasing fees for individual investors and reducing opportunities for both individual and institutional investors diversify their portfolios.
With little or no compelling empirical evidence that common ownership restricts competition, and with efforts to stifle competition that is already illegal and enforceable, Congress should reject proposals that restrict common ownership and instead allow capital markets to continue to thrive.
About the authors
Director, Center for Capital Markets Competitiveness
Kristen Malinconico is Director of the US Chamber of Commerce’s Center for Capital Markets Competitiveness. She oversees the Center’s portfolios for Wealth Management, Derivatives and Fiduciary Affairs.
Senior Vice President, International Regulatory Affairs and Antitrust
Sean Heather is senior vice president of international regulatory affairs and antitrust.