By analogy, it may have been the desire of people to travel from London to New York which made transatlantic liners, worth investing in, but it wasn't the passengers that steered the Titanic into an iceberg.
The disturbing point about the concentration of capital management power into the hands of a few is that to some extent it distorts the market's price-discovery function. Portfolio managers routinely align themselves with corporate managers - not necessarily out of any ill-intent, but just because doing so has delivered relatively steady returns over time - and as a result shareholder motions at company meetings - on board membership, executive compensation, risk strategy and so forth - are usually marginalized. This is good from portfolio managers point of view as it reduces share price volatility and pushes corporate management towards maximising quarterly returns, but as we've seen in the last two years those goals may not align well with the interests of investors over the longer term, at all.
Activist investors have changed this to some extent, but generally they rely heavily on leveraging in partnership with private investment pools or proxies, and even then a majority of activist investors are focused on increasing growth and profitability rather than risk management, preserving the interest of stakeholders, reducing externalities or capital preservation. The political consequence of this is that even those who are heavily invested in the market via pension schemes and so forth are hostile towards it because they can not see how their interests are reflected by capital flows, and regard the invisible hand as something of an iron fist.
Of course, some of this is due to ignorance and short-termism on the part of retail investors and pensioners who actually support rent-seeking economic behavior but simply don't see the big picture. A more serious issue, though - returning to my titanic analogy - is that the smaller the pool of portfolio managers, the greater the risk of disaster when herding or flocking behavior affects financial vectors with very large displacement.
The disturbing point about the concentration of capital management power into the hands of a few is that to some extent it distorts the market's price-discovery function. Portfolio managers routinely align themselves with corporate managers - not necessarily out of any ill-intent, but just because doing so has delivered relatively steady returns over time - and as a result shareholder motions at company meetings - on board membership, executive compensation, risk strategy and so forth - are usually marginalized. This is good from portfolio managers point of view as it reduces share price volatility and pushes corporate management towards maximising quarterly returns, but as we've seen in the last two years those goals may not align well with the interests of investors over the longer term, at all.
Activist investors have changed this to some extent, but generally they rely heavily on leveraging in partnership with private investment pools or proxies, and even then a majority of activist investors are focused on increasing growth and profitability rather than risk management, preserving the interest of stakeholders, reducing externalities or capital preservation. The political consequence of this is that even those who are heavily invested in the market via pension schemes and so forth are hostile towards it because they can not see how their interests are reflected by capital flows, and regard the invisible hand as something of an iron fist.
Of course, some of this is due to ignorance and short-termism on the part of retail investors and pensioners who actually support rent-seeking economic behavior but simply don't see the big picture. A more serious issue, though - returning to my titanic analogy - is that the smaller the pool of portfolio managers, the greater the risk of disaster when herding or flocking behavior affects financial vectors with very large displacement.