Sean Heather
Senior Vice President, International Regulatory Affairs & Antitrust, U.S. Chamber of Commerce
Published
April 20, 2022
The United States possesses 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 investors to save for the future. They also support U.S. job creation and retirement security for millions of Americans.
One of the most common and widely used tools for managing investments is the practice of investing in a range of assets from similar companies in a single sector. Millions of American investors benefit from this practice which offsets the risk of an investment of a single company, thereby reducing portfolio volatility. Highly 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, referred to as “common ownership”, poses a threat to the American economy by reducing competition in the market.
The U.S. Chamber evaluates these claims in recently published report on the impacts of common ownership. Our research finds that contrary to the expressed concerns regarding a reduction in competition, the practice of common ownership both promotes stability and improves the performance of publicly traded companies.
Does Common Ownership Hurt Competition?
The available academic evidence shows that common ownership does not impair competition. Recent academic studies have found no correlation, much less causation, between common owners and higher prices.
For their part, federal regulators agree that there is no persuasive evidence that common owners inhibit competition. During lengthy remarks in 2018, Noah Philips, a Commissioner on the Federal Trade Commission (FTC), said in part, “The large institutional investors do not appear to be at the apex of a massive antitrust conspiracy.”
Other enforcement officials agree. In late 2017, in a joint statement to the Organisation for Economic Co-operation and Development, the U.S. antitrust agencies asserted that it had found insufficient “evidence of anticompetitive effects” from common owners “to make any changes to their policies or practices with respect to common ownership by institutional investors.”
Restricting Common Ownership Would Hurt Capital Markets and Investors
Despite the fact that there’s no discernable impact on competition, there’s an emerging effort to raise common ownership as a regulatory issue in Washington, D.C. In 2020, the FTC proposed a rule that would have required asset managers to aggregate holdings in an issuer across all of its managed funds to determine whether the institution held a high enough percentage of the asset to trigger a reporting requirement under the Hart-Scott-Rodino Act. If promulgated, this rule would delay the completion of investment opportunities and dramatically increase review times and filing fees – fees ultimately borne by the millions of individual investors who consume financial services.
Ultimately, efforts to restrict common ownership would harm capital markets, companies, and investors by increasing the cost of raising capital for companies (particularly new and smaller companies), raising fees for individual investors, and lessening the ability of both individual and institutional investors to diversify their portfolios.
With little or no persuasive empirical evidence that common owners limit competition, and with efforts to suppress competition already illegal and enforceable, Congress should reject proposals that limit common ownership and instead allow the capital markets to continue to flourish.
About the authors
Kristen Malinconico
Kristen Malinconico is a Director for the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. She leads the Center’s portfolios for asset management, derivatives, and fiduciary issues.
Sean Heather
Sean Heather is Senior Vice President for International Regulatory Affairs and Antitrust.
