Growing share of global market cap is passively managed, OECD warns

Politics, passive investment and shareholder power over the world’s publicly-traded companies are the major concerns highlighted in a new report from the Organization for Economic Co-operation and Development (OECD).

The report, which examines the global market of public companies, finds that institutional investors control about 41% of global market capitalization, and that much of this is now passively managed.

This represents a concern for policymakers, the report says, as passive investors may not devote enough attention to examining individual company performance and ensuring that capital is allocated efficiently to promising new firms.

Institutional investors are particularly important in the U.S., the U.K. and Canada, the report notes. They hold 72% of the listed equity in the U.S., 63% in the U.K. and 47% in Canada.

Domestic institutional investors account for 25% of the market cap in Canada; U.S.-based institutional investors control 17%, and other foreign institutions hold 4%.

Another key concern, the report says, is excessive shareholder power. It finds that, for about half of the world’s listed companies, their three largest shareholders control over 50% of the company.

“This may increase the scope for abusing the rights of other shareholders and, if not properly regulated, jeopardize market confidence,” it says.

The markets with the least ownership concentration are the U.S., the U.K., Canada and Japan, the report says — although the three largest shareholders in these markets still control, on average, between 25% and 30% of companies’ capital.

The other big concern cited in the report is undue political influence.

The OECD report says that 14% of the global market cap is controlled by governments, through both their direct stock holdings and ownership via vehicles such as sovereign wealth funds and public pension funds.

Moreover, governments control over half the shares in almost 10% of the world’s largest listed companies, it says.

Given these government ownership levels, the report says that it’s important to consider how political priorities may affect corporate decision-making, and how government holdings impact taxpayers and pension beneficiaries.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.