Editing Passive management (section)

==Concerns about passive investing==
Criticism has been leveled at passive investment by investors like [[Howard Marks]]<ref>Howard Marks (2018), [https://www.oaktreecapital.com/docs/default-source/memos/investing-without-people.pdf Investing Without People], Oaktree.com, retrieved 2020-12-28</ref> [[Carl Icahn]], [[Michael Burry]] and [[Jeffrey Gundlach]]<ref name="Reinicke2019">Carmen Reinicke (Aug 29, 2019). [https://markets.businessinsider.com/news/stocks/investors-that-have-spoken-out-against-passive-investing-2019-8-1028485512#carl-icahn1 'Big Short' investor Michael Burry is calling passive investment a 'bubble.' He's not the only finance luminary sounding the alarm.] Business Insider, retrieved 2020-12-25</ref> who argue that [[economic bubble|asset bubbles]] can be considered a byproduct of the increasing popularity of passive investing. [[John C. Bogle]] of [[The Vanguard Group]], while a staunch advocate for passive investing overall, also argued in 2018 that the growth in passive management firms would soon result in a concentration of over half of American stock ownership, and associated [[proxy voting]] power, among three large firms (Vanguard, [[State Street Global Advisors]] and [[BlackRock]]). Bogle stated: "I do not believe such a concentration would serve the national interest".<ref name="Reinicke2019" />

In 2017, [[Robert Shiller]], a [[Nobel Prize]] winning economist at [[Yale University]], stated passive index funds are a "chaotic system" and "kind of [[pseudoscience]]" due to what he described as an over-reliance on [[computer models]] and a neglect of the businesses whose stocks make up index funds.<ref>Stephanie Landman (2017-10-14) [https://www.cnbc.com/2017/11/14/robert-shiller-passive-investing-is-a-dangerous-chaotic-system.html?&qsearchterm=shiller%20passive%20investing Passive investing is a ‘chaotic system’ that could be dangerous, warns Robert Shiller]. CNBC.com, retrieved 2020-12-28</ref>

According to researchers with the [[Federal Reserve]] who published their findings in 2020, the growing popularity of passive investing has increased some risks for investors and the economy generally, but reduced other risks. "Some passive strategies amplify market volatility, and the shift [towards passive investing] has increased industry concentration, but it has diminished some liquidity and redemption risks."<ref>Anadu, Kenechukwu and Kruttli, Mathias S. and McCabe, Patrick E. and Osambela, Emilio, The Shift From Active to Passive Investing: Potential Risks to Financial Stability? (May 15, 2020). Available at SSRN: https://ssrn.com/abstract=3244467 or http://dx.doi.org/10.2139/ssrn.3244467</ref>

Passive investing may contribute to [[shareholder apathy]], whereby investors are less engaged in the [[corporate governance]] process.

Benjamin Braun<ref name="Braun">{{cite journal |last1=Braun |first1=Benjamin |editor1-last=Hacker |editor1-first=J. S. |editor2-last=Hertel-Fernandez |editor2-first=A. |editor3-last=Pierson |editor3-first=P. |editor4-last=Thelen |editor4-first=K. |title=Asset Manager Capitalism as a Corporate Governance Regime |journal=American Political Economy: Politics, Markets, and Power |date=18 June 2020 |doi=10.31235/osf.io/v6gue |url=https://osf.io/preprints/socarxiv/v6gue |access-date=7 August 2024 |publisher=SocArXiv |language=en}}</ref> suggests that, since American stock ownership is concentrated on few big [[asset manager]]s which are very diversified and do not have a direct interest in the performance of the companies, this emerging "asset manager capitalism" is distinct from the earlier [[shareholder primacy]].
The asset managers usually vote with company managers.
Also, as funds invest in most companies in the sector, they would benefit from [[monopoly|monopolistic]] prices.
In an extreme case, there could be economy-wide monopolies where asset managers have "bought the economy".
In a regime of [[common ownership]], while asset ownership is diversified, it is a small part of the population who invest in funds and a top 1% of the wealth distribution owning 50% of [[corporate equity]] and mutual funds.
[[Wage stagnation]] would be an expected [[externality]].
Asset managers have an incentive to increase the assets value and influence [[monetary policy]].

In response, defenders of passive investing argue that some claims against the strategy are incorrect, and that other claims are partially accurate but overstated.<ref>James J. Rowley, Jr., CFA; Joshua M. Hirt; Haifeng Wang, Ph.D. "[https://personal.vanguard.com/pdf/ISGBEL.pdf Setting the Record Straight: The Truth About Indexing]" (Jan 2018). Vanguard.com</ref>