Episode Summary
Index investing has been a very successful, low-costing investing strategy that has grown considerably over the last few decades. But there have been a number of concerns regarding the growth of indexing and the influence of index fund managers. These issues revolve around governance, fears of anti-competitive behavior due to cross-ownership, fiduciary duty implications, and the distortion of market signals. We sat down with Robin Wigglesworth, author of “Trillions”: the definitive book on the past, present and future of passive investing, and editor at FT’s Alphaville, to discuss all these issues.
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Guest-at-a-Glance
💡 Name: Robin Wigglesworth
💡 What he does: Robin is the editor at Financial Times Alphaville.
💡 Company: Financial Times Alphaville
💡 Noteworthy: He is also the author of ”Trillions”, a book on the origins, growth, and implications of index investing
💡 Where to find Robin: LinkedIn｜Twitter｜www.robinwigglesworth.com
Key Insights
⚡Indexing is significant but underestimated. And that explains why Robin decided to write a book on this topic. He adds: ”As a journalist, the subjects that fascinate me are the ones that are hugely important but don’t get enough coverage or get bad coverage because it’s too boring or too complicated sometimes. […] I decided this was going to be one of the main subjects I wanted to own because I thought it was important but misunderstood.”
⚡Could the concentration of ownership lead to anti-competitive behavior? But is this just an assumption, or do we have real-life examples to prove this statement? ”The classic example is airlines, where some economists have done some research and found quantitative evidence of linkage when there is horizontal cross-shareholding or common ownership, which seems to lead to less competition regarding airline routes.” But Robin also emphasizes that such scenarios are quite different from how critics of the common ownership theory describe them. So, instead of a bunch of managers in a smoke-filled room agreeing on anti-competitive strategies, the idea is: ”If you are the CEO and know that your biggest shareholders are also the biggest shoulders in all your rivals, is there at least a subconscious impact that dampens your will or urges to compete now? In theory, there is, and that’s why I spent a lot of time discussing this in my book. I think it is a huge subject, but I should stress that I am personally unconvinced.”
⚡Is indexing too big? According to our guest, ”The economics of scale in indexing is so obvious that the big is already huge, and they’re going to become bigger and bigger.” However, we’re decades away from issues resulting from potential changes in the size of indexing. ”It boils down to — and this becomes almost a philosophical question — what makes a market? Multiple participants. But in reality, capitalism works all across the board with not that many players. […] Capitalism is good at picking up market signals. […] Index funds are freeloaders on the price signals being set by active managers. […] However, as the number of fund managers grows, the entire market is at risk of becoming mediocre. ”One of my favorite stats is that there are still more hedge fund managers in the United States than Taco Bell managers. So do you need all these people, who are essentially glorified beaters, charging one or “2 or 20”? No, we don’t need to. There’s too much mediocrity in that industry, and if you are mediocre at investment management, you are a net negative to the world.”
Episode Highlights
Introducing Financial Times Alphaville
”FT Alphaville is the FT’s finance blog. It evolved into a delightfully snarky, sarcastic, smart, sophisticated financial blog that can be geeky and nerdy. So we use memes. We can even swear occasionally. We can break the strictures of normal journalism, but only in the service of making people smarter. […]
More recently, we’ve been writing about crypto going down the drain and the LDI debacle in the UK. So we love doing geeky, nerdy, and colorful memes. The image is a way of making it more vivid and interesting. And sometimes people don’t realize how important — but also how fun — this can be.”
Many of the Criticisms of Indexing Are Neither Original Nor Based on Data
”The economics of scale in indexing is so obvious that the big is already huge, and they’re going to become bigger and bigger. And this is something we should be aware of.
But it’s not unique in the history of the world. If you look at the US capital markets or European capital markets, it’s not new that certain big investment funds or players were hugely influential. […]
What is unique today is that we are seeing an increasing concentration of ownership and the increasing politicization of many issues.”
Is Indexing Aligned With Fiduciary Duty?
”We have seen massive wholesale adoption of passive investing by the fiduciary-oriented financial advisory community. But in countries where there is less of a defined or clear duty in that respect or legal requirement, you have seen the adoption of passive be a lot slower.
In Europe, if you go to your local bank — a very bank-dominated market — your bank advisor will typically advise you to put your money into the bank’s expensive active funds.
There is an enormous philosophical debate about what fiduciary duty is, and in the US, it’s called The Good Man, The Wise Man, or the Prudent Man Doctrine.
But […] if you look at the data, it speaks in favor of passive. However, there is an issue. If everybody does that, does it lead to problems? The classic tragedy of the commons. […] Yes, if everybody were passive, there wouldn’t be a market, but that is never going to happen in any way.”
Top Quotes
[04:27] ”When I started digging into the origin story of indexing and realized that you could look at it as an invention — like the airplane or the original FinTech — because the index fund was born out of the first uses of data and computers in finance. It is the original FinTech story, and the people involved were just fascinating.”
[08:48] ”In the US, there is a lot of political paralysis. People look at alternative levers to get their policies through and go to where the power is. And undoubtedly, there is power in corporate ownership and accumulated corporate ownership.”
[16:47] ”The data is unequivocally in favor of a passive approach that, arguably, even more money should be going into passive strategies than there already is.”
Full Transcript
[00:00:00] Robin Wigglesworth: We are moving in a world that won’t be defined by active versus passive, but it’s more complex versus simple, and then, on a fee scale, so an exec fund is systematic. It’s just very simple and systematic, and you can literally see the algo, as it were, as it were, or, like, a D.E. Shaw or Renaissance on the other side, which is, again, systematic but highly complex
[00:00:21] and I think the world is just generally going from artisanal to systematic and a science data-led approach to investing.
[00:00:46] Nick Mazing: Hello and welcome. You are listening to Signals by AlphaSense. I’m your host, Nick Mazing. In this episode, we’re joined by Robin Wigglesworth, who is an editor at the Financial Times Alphaville but is joining us in his capacity as the writer of Trillions, How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever.
[00:01:06] That’s a mouthful, but it’s true. That’s actually exactly what happened. So, now, if somebody follows you on LinkedIn, they would think that you are a, a finance meme account because I think you’re one of the best, you have one of the best games in the finance journalism industry,
[00:01:20] but, so, can you tell us a little bit more about, you know, who you are and a little bit more about Alphaville since people obviously know the main Financial Times product, but Alphaville, I think, is a little bit outside of that.
[00:01:34] Robin Wigglesworth: Yeah, that’s very true. But, first of all, thanks so much for inviting me on, Nick. It’s a, it’s a real privilege and pleasure, literally talking my book, one of my favorite subjects. Yes, I’m the editor of FT Alphaville, which is essentially the, the FT finance blog, is the easiest way to describe it.
[00:01:49] It started off as, I think, kind of alongside some Deal Book and, and other variants in some of the .com era of sort mid-two thousands, but eventually just kind of evolved into being this kind of delightfully, snarky, sarcastic, very smart, sophisticated, ideally financial blog that we can be geeky and nerdy.
[00:02:08] So, you know, we do use memes. We can even swear occasionally, we can break the strictures of normal journalism, but only in the service of, ideally, like, making people smarter. So, you know, we’ve written deep dives into, is there determination committees and how they decide CDS auctions, for example, or collective action clauses in sovereign debt bonds and how they’ve evolved since Elliot sued Argentina,
[00:02:34] more recently, we’ve been writing about obviously crypto going down the drain, the whole FTX implosion and the LDI debacle in the UK, so I’d say, like, we love doing geeky, nerdy stuff, and the, the colorful memes, the image is, it’s kind of more of a, a way of making it more vivid and interesting, but maybe sometimes people don’t really realize how important, but also how fun this can be as well.
[00:03:01] Nick Mazing: Yeah, and one thing that I really like about memes is that even though we, as a society, disagree on almost everything, right, the meme as a vehicle for showing a certainty is agreed upon. It’s universal. So, whatever the meme is, chances are, you know what the other person is trying to say, even if you disagree with it,
[00:03:25] and I think that’s what makes it fairly powerful. So, now let’s literally talk about your book. Out of all the possible finance topics, right, I mean, it’s a pretty big world, indexing is like white bread. There’s no libraries named after indexing, there is no sports arenas or anything like that, why did you pick indexing?
[00:03:46] Robin Wigglesworth: Well, because it’s important basically. You know, as a journalist, the subjects that really fascinate me are the ones are hugely important but don’t get enough coverage or get bad coverage because it’s too boring or too complicated sometimes and, and markets in finance, they work on, on narratives, means are kind of basically the condensed narrative, right?
[00:04:07] And humans love narrative. So, we like it when a human fund manager says, “I’m buying X because of Y,” or, “I screwed up this year because of central banks.” Normally they always have somebody they blame, and the humbled index fund didn’t really have that much coverage ’cause you can’t really interview the index fund.
[00:04:24] If I write about, like, active management, what markets are doing, I can call Will Danoff at Fidelity, you can’t really call the S&P 500. I, but I, I thought it was important that it was really changing the fabric of financial markets. When I first started covering finance years ago, it was kind of obvious, but it was early days,
[00:04:41] it was when I really started covering it full-time, was when I was the US Market Center at the Financial Times in New York from 2015 and onwards, and I decided this was gonna be one of the main subjects I wanted to own because I thought it was important and misunderstood or underestimated, and that eventually became an entire book when I started digging into the origin story of indexing and realized that actually you can look at it just as, like, an invention, like the airplane or maybe the original FinTech because the index fund kind of was born out of the first uses of data and computers in finance,
[00:05:17] is literally how it started. It is the original FinTech story and the people involved were just fascinating, absolutely, absolutely fascinating. So, when I discovered that, it was like, holy cow, I think there’s a great book here and, and you know how good it is up to readers, but at least I loved writing about it and researching it myself.
[00:05:40] Nick Mazing: I mean, I, I, I, I enjoyed the book and, you know, the history you presented, how it all came together, I think it’s important to know, you know, really all the things that had to go right and all the right personalities at the right places, right? So, let’s say Jack Bogle not getting along, which is, you know, pretty normal for entrepreneurs, you know, they score low on the agreeable, when you look at the kind of the personality dimensions, like, I scored low on agreeable, so it’s very relatable.
[00:06:04] What I thought was most interesting is, in the second part of the book, you actually stop it with the history and you look at, you know, potentially the issues and I’m not using this as a, you know, people say issues when they mean problem, it’s simply a thing. It’s an issue rather than things. So, number one, governance. When you think about how successful indexing has been, and I’m forgetting the, the statistic you have in the book, but let’s say 80% of the S&P 500, you know, the top three shareholders are Vanguard, BlackRock, and State Street and some would say, and I think it’s not an, it’s not an unreasonable thing to say that it creates an artificial choke point for political agenda,
[00:06:47] and obviously HG is a big thing, it’s, it’s not just that, and, you know, I, I should clarify that, you know, BlackRock is an investor in Alpha Sense, they’re in our capital structure, so, you know, I’m going to say good things about BlackRock, just some people know, and, you know, for example, BlackRock recently introduced the, what you could call, describe as “pass-through voting” where the larger, where the larger investors in certain BlackRock funds actually get to own their own shares rather than BlackRock owning it on their behalf. So, is there a, is that governance or chokepoint or wherever, call it a real problem?
[00:07:22] Robin Wigglesworth: Well, I think choke point is maybe not the right term for it, but I do think this is the biggest issue when it comes to the rise of past investing. I mean, I, I went read through old pensions, investment magazines, Institutional Investor, Wall Street Journal articles about this going back to the sixties and seventies,
[00:07:41] and, you know, many of the criticisms that we now see about indexing, frankly, people used to level it mutual funds a hundred years ago. They’re frankly not very original, and they’re not very rigorous or, or based on actual data, it’s more people defending their turf, but I think the, the economics of scale in indexing is so obvious that the big are already huge and the disconnect’s going to become bigger and bigger
[00:08:06] and this was something that worried even Jack Bogle before he passed away in 2019. I think it’s, it’s basically that would’ve been probably something that we should be aware of, anyway, but it’s not unique in the history of the world. If you look, look through, like, the US capital markets or European capital markets, it’s not new that there were certain big investment funds or plays that were hugely influential,
[00:08:31] whether it’s John Pierpont Morgan or the investment trust of the twenties, you know, this isn’t per se new, I mean, just look at AT&T’s pension system, 50, 60 years ago, it was the single biggest owner of US equities by a mile, and it was hugely influential. I think what is unique now today is that we are both seeing increasing concentration of ownership and increasing politicization of so many issues
[00:08:59] and I think it’s, you know, it’s, it’s, it’s valid everywhere to look at this, but I think in the US where frankly there is quite a lot of political paralysis and ranker, people look at alternative levers to get their policies through, and they go to where power is, and undoubtedly there is power in corporate ownership and accumulated corporate ownership, which sits not just in the big, three passive owners that you mentioned, but also in the Fidelity or Capital or T Rowe,
[00:09:30] and I think, look, both sides make a rod for their own back on this, but I think it’s, it’s the kind of defining issue for the next 10 years because, you know, even if they decide not to do something, for example, BlackRock has generally been a bit more on the parapets than Vanguard, but even the decision not to do something is a decision with consequences given their reach.
[00:09:54] Vanguard just this week has been slated for pulling out of a net zero alliance of asset managers whilst BlackRock is being slated from the other side. So, I like, they, they try to do the right thing, but it’s a very difficult path to navigate, I think.
[00:10:09] Nick Mazing: Yeah, you make a very interesting point how that is an overflow of the political paralysis and polarization. I hadn’t really thought about it that way. And I, I should also point out when you said that you read old magazines and things like that. I, I went through the notes in the book. I don’t know whether it’s a third of the book or so because I was very curious how much research went, it’s certainly, very well-researched.
[00:10:29] Robin Wigglesworth: Labor of love, I say, I think, as well.
[00:10:34] Nick Mazing: The second issue that you bring up in the book is that of, does the ownership concentration where you have, let’s say, the big three being a, you know, top three, top five, top ten shareholders, so many companies, especially within the same industry, lead to anti-competitive behavior, in other words, because company A and company B, let’s say two airlines, I think is the example you used,
[00:10:55] Nick Mazing: have you seen evidence of the ownership concentration leading to sort of anti-competitive behavior where, because they’re owned by the same companies, essentially, they place the right directors, and then any sort of price competition or something like that stops, and it hurts the consumer?
[00:11:11] Robin Wigglesworth: I mean, it’s a fascinating subject, and it’s sort of the pointy end of this broader concentration issue. This is, like, how is it really impacting corporates on a ground level? The classic example is airlines where some economists have done some research and found quantitative evidence, at least, or linkage between when there is horizontal cross-shareholding or common ownership, depending on what’s of academic term you use
[00:11:37] seems to lead to less competition when it comes to airline roots. The classic example of this is actually Berkshire Hathaway, that owned a big chunk of several airlines, so it’s not actually just a passive issue, but obviously, it is the most acute or most pertinent to index funds because they own a little bit of everything
[00:11:58] Robin Wigglesworth: and I think critics of the common ownership theory sometimes unfairly portrayed this as the academics pretending that, you know, BlackRock and Fidelity and State Street and Vanguard are getting together in a smoke-filled room and colluding somehow, like very old school anti-competitive behavior and it’s not that at all.
[00:12:20] The idea is that if you are the CEO of an individual company and you know that your biggest shareholders are also the biggest shareholders in all your rivals, is there at least subconsciously some sort of impact that dampens your will or urge to compete? Now, I think, actually, in theory, there is, and that’s why I, I spent quite a lot of time discussing this in my book, and I think it is a huge subject, but I should stress that I am personally at least unconvinced because as we know, CEOs act on a host of different incentives.
[00:12:57] The most, the biggest of which is they want to jack up their own share price. They don’t give a shit about their rival share price, so if they are better served with being aggressive in, in competing against their rivals, which most of the time they are ’cause they’ve got share-based comp, they are gonna do so anyway.
[00:13:14] And also, frankly, the idea that the index managers benefit from this is also, I think, is a bit silly because, frankly, they do basically own a cross-section of the entire economy, so even if they have an incentive to keep airlines from competing against each other, well, that might dampen air travel, and that might hurt their hotel stocks
[00:13:33] or other travel stocks, right? So, I think, like, the incentives on the asset management charges isn’t there, and I’ve talked to some of them who said, “Look, if this was actually happening, this would be a bad thing for us,” and this also just, the most problematic thing is the airline industry is the best example,
[00:13:50] there’s also a terrible example because it’s a famously bankruptcy-prone industry, right? Nobody thinks of airlines and think, “Oh, well, that’s a monopolistic, oligopolistic profit margin machine,” right? It’s basically Richard Branson famously said, “The best way to become an airline millionaire is to be a billionaire and invest in an airline,”
[00:14:11] but I think it’s a big topic that isn’t going to go away because we are seeing this cross-shareholding just get bigger and bigger and bigger and, like, even the Federal Trade Commission has been looking at this as has the European Commission.
[00:14:24] Nick Mazing: Mm-hmm. Now, let’s talk about another angle of, you know, in indexing, and that is, and I’m, I don’t know what to think about it, but is indexing aligned with fiduciary duty in, and I’m going to clarify the question, so, imagine, you know, you’re a regular person, you have a financial advisor, they have a fiduciary duty towards, in ours, they have to put your interest above their own interest,
[00:14:53] and you go to them and, and they say, “Okay, you know, based on your risk profile wage, things like that, you need to be, let’s say, 70% in equities and here is 500 companies that I know absolutely nothing about that you should put your money in, right,” in other words, the fundamental analysis is removed and currently in the United States, at least, placing regular clients in an index fund is what is considered the correct thing to do for somebody who is a fiduciary because of, you know, past performance and, and things like that.
[00:15:25] Is there a fiduciary angle where indexing is not exactly aligned with fiduciary because there is, there is no actual analysis of the assets that, that are being purchased? It’s looked at, at a higher level, at this asset class.
[00:15:40] Robin Wigglesworth: It’s an interesting subject, but I actually would argue that the fiduciary duty clearly speaks to investing more passively and, frankly, this is why we have seen a wholesale massive adoption of passive investing by the fiduciary-oriented financial advisory community and in countries where there is less of a defined or clear duty in that respect or legal requirement, you actually have seen the adoption of passive
[00:16:09] be a lot slower. I mean, I’m thinking about Europe, where if you go to your local bank, it’s a very bank-dominated market, and lo and behold, your bank advisor will typically advise you to put your money into the bank’s own expensive active funds. I do think there is an enormous philosophical debate about what is fiduciary duty and, you know, in the US, I think it’s called The Good Man or The Wise Man, or the Prudent Man doctrine, but I, for me, it’s just the date is so unequivocally in favor of a passive approach that arguably even more money should be going into passive strategies than there already is, because, I mean, mathematically in the US large cap space, you know, I think on any rolling 10 or 20, 15, 20-year period, you look at, there’s
[00:16:57] 10% or 5% to 10% over the past 40, 50 years of large-cap asset managers beating the index, and that’s basically, what you’d expect from random charts, right? Arguably even less, and I think it’s getting harder and harder the active performance of classic mutual fund is actually getting worse, not better, because more and more, frankly, dumb money,
[00:17:18] the stockbroker punting stuff on his, for his golf buddies, they’ve been kind of driven out of business, or they’re slowly going out of business. The kind of the classics of day trading dentists in Daytona, they aren’t doing this anymore, and that’s why markets are getting more efficient. Active managers are competing against not just some, some Yokel in Florida, they’re competing as Ken Griffin and Jim Simons, right?
[00:17:41] People have hired hundreds, maybe even several thousand computer scientists and Ph.D. economists, so if you look at the data, it speaks in favor of passive, and that, I think, you know, speaks quite clearly to your fiduciary duty, what you should do at any given time. I do think there is an issue that, like, if everybody does this, does that lead to the problem? The classic tragedy of the commons, if, let’s say, everybody invested passively, the markets would not work, and I always feel it’s like this truism that people trot out as if it’s profound wisdom, but it’s just ridiculous and, like, they, if everybody ate batteries, we’d all die, I mean, it’s just, it makes no sense.
[00:18:22] Yes, if everybody was passive, that would be the, there wouldn’t be a market, but that is never going to happen in any way. There is no such thing as truly passive anyway. People aren’t just putting their money into the Vanguard 500 fund, they’re putting the money into Russell 3000 funds, Schwab total stock market funds, dimensional small caps or mid-caps or value funds,
[00:18:44] the, the entire index or passive environment is also quite vibrant and is not just all plain vanilla beater, if we can even decide on what that even means, so, I tend to think that actually, markets are getting more efficient, that’s a mix of more quantitative investors and passive investors replacing kind of the dumb index trackers that
[00:19:06] used to exist ’cause the dirty secret that everyone in the asset management industry will admit after a couple of drinks is that a lot of people charge very big fees for basically being an index tracker anyway. I, I remember talking to the head, CEO of one major, asset manager, one of the world’s big SaaS managers, even he said, looked at the data and he said, “Over the past,” this was in 2019, I was talking to him, and over the past one year, three years, five years and ten years, those $8 trillion worth of money in funds have underperformed over those periods, 8 trillion worth of money that had just sucked for over a decade, and people just hadn’t pulled their money out, and I think actually I want more of that money to go into passive, and I think that will make markets, frankly, more efficient rather than less.
[00:19:54] Nick Mazing: And, and, and you know, my, my, my fourth question specifically directly related to indexing is exactly that, is indexing too big because the way I see it, and obviously I haven’t done nearly as much work as, as you have on that, have you seen quantitative estimates at, at what point would you end up having some kind of problem because it is a free rider problem in a way.
[00:20:16] So, when, let’s say, when you look at the largest, the S&P 500, and to get there, somebody has to actually decide to bid up the price of that company to be considered and, you know, that’s, that’s by the way, not to, not to dunk on the S&P 500 inclusion criteria because there, there is simplicity,
[00:20:35] right, you have to have a certain market cap, it’s, it’s, it’s not a hard line, right, but, which is a, which, in my view is a proxy for price momentum or something like that. You have to be profitable depending on, you know, exactly, you know, certain number of quarters and so on, that’s a proxy for quality.
[00:20:50] More recently, they intro, they introduced the, they’re no longer getting dual-class share stocks. That’s a proxy for governance, right? So, so it’s kind of smart, but does it get too big at some point?
[00:21:01] Robin Wigglesworth: Maybe, but I think we’re decades away from that and, you know, it boils down to, and this becomes almost a philosophical question, but what makes a market? Multiple participants, right?
[00:21:15] But, in reality, capitalism works all across the board with, you know, only not that many players. Like, if you buy batteries on Amazon, do you think that market is broken?
[00:21:26] Does that not function because, basically, you’re just bilaterally buying AMOLED batteries on Amazon? No, capitalism is pretty good at picking up market signals without, frankly, thousands, if not tens of thousands, it’s not millions of people in nanoseconds trading all the time. What is actually the value or importance of that?
[00:21:43] Robin Wigglesworth: I think markets, you know, actually have, there, there is a huge societal value that people don’t always appreciate in there being liquid and dynamic and constantly adjusting to things. Sometimes they over-adjust, and sometimes they under-adjust, as we know, but I, I think that does have a societal value, and index funds are freeloaders, freeloaders on the price signals being set by active managers, but, look, there are more mutual fund managers in America today than there’s ever been before in history. There is more trading in volume today there has ever been before in history, there are more hedge fund managers than had ever been before in history,
[00:22:22] you know, there are still, and this is one of my favorite stats of all time, there are still more hedge fund managers in the United States than there are Taco Bell managers. Do you really need all these people that are essentially glorified beater, charging one or 2% or 2.20%? No, we don’t need that. I mean the, that feels terrible to say this as a financial journalist, you know, my profession is not exactly the most economically successful in the world
[00:22:52] Robin Wigglesworth: and some of the smartest people I’ve met in my life are investment managers by far, they are smart, hardworking women and men doing, I think, sometimes God’s work, but there are too many of them, and they charge way too much money. There is this massive rent extraction happening and frankly, if you talk to a Ken Griffin or a Jim Simons or Warren Buffets talked about this very loudly,
[00:23:16] they admit this, they know this, there’s too much mediocrity in that industry, and if you are mediocre investment management, you are actually a net negative to the world because of the fees you charge and the money that costs to do what you do, you’re actually subtracting value from the net pie of wealth as it were. So, my ideal world would be a far larger passive slice. I mean, God knows when things start kind of getting funny, but I think we can go to, like, 80%, 90%, and there’s 10% of the asset management community, they’re still active and truly active. It’ll be more quantitative, less sort of have a hunch, buy a bunch, go to lunch, all discretionary style fundamental investors, and they will ensure that markets stay, basically pretty efficient by constantly trading off minute signals that come from, you know, all this digital data that we are constantly creating all the time.
[00:24:14] So, I think we are actually heading towards a more dynamic investment universe and, at the same time, a more dynamic market environment at the same time.
[00:24:23] Nick Mazing: I think we have to schedule a separate episode to really see how you feel about active managers.
[00:24:28] Now, let’s go back to the book. After the book came out,
[00:24:31] I’m sure you, I mean, you hear from all of random people anyway because you’re visible and influential, but after the book came out, I’m sure you heard about some things that maybe you didn’t know about or, or what surprised you the most from the feedback after the book came out?
[00:24:49] Robin Wigglesworth: It was interesting. I mean it, the feedback was well, was both sides. Like I, I got a positive review from Burton Malkiel, the granddaddy of Efficient, more kind of a random walk in the Wall Street Journal, and even Paul Singer, who hates index funds and passive investing and thinks it’s become a blob devouring capitalism also praised my book and said it was his book of the year.
[00:25:11] I, I, literally screamed that for five minutes by a former Fidelity manager at one conference call, and I got an email from the CEO of one of the biggest hedge funds on the world saying he loved his book and agreed with absolutely everything in it.
[00:25:24] Robin Wigglesworth: So I, I guess maybe I wasn’t surprised by that, but, but it was nice to see, you know, frankly, getting praise and criticism from both sides of this argument as I worked ’cause sadly, it has become a kind of a silly two-team style argument, which I think is, is silly because frankly, look, I disagree with myself quite often, like, several times a day, and I changed my mind all the time.
[00:25:49] So, I don’t always know a hundred percent what I think about these things, but of the interesting stuff I, I think, the lack of pushback from me saying this is gonna grow huge and this is actually one thing that frankly formed the reason why I wrote the book, the argument is no longer active versus passive,
[00:26:07] passive has won the argument. You will not find an active manager, whether it’s a Paul Singer or anybody else, saying that passive does not have a huge role to play for most people, it’s more about the negative externalities of its already pretty incredible growth and how much it’s gonna grow in the next 10, 20, 30 years, and how we can best manage that and I, I tried to get into some of those arguments
[00:26:31] in the latter chapters of my book, but they’re so difficult, right? Because there are no easy answers. Like, how do we deal with governance? Do we just arbitrarily split up BlackRock? I’m not sure that actually helps, if there’s BlackRock A and BlackRock B, does that really help the governance issue?
[00:26:48] Robin Wigglesworth: So, I think the real issue is the consequences of where we know we are heading now. As you said earlier, I think, I mean, passive has won now.
[00:26:59] We’re really talking about how total the victory’s going to be and what shape passive is because frankly, one of my pet peeves, even when I talk about these things, is that even, even active-passive, there is no thing as passive, right?
[00:27:12] Even like you say, if you choose an S&P 500 index fund, you are choosing 500 stocks chosen by the index committee of S&P Dow Jones.
[00:27:21] Everything has an active component to it, and I think as index funds start, there’s a lot of innovation happening in that space. I think the always pretty blurry line between active and passive is kind of getting wiped out now
[00:27:35] and I think, broadly speaking, and this is my sort of my big galaxy level thought about this, is we are moving in a world that won’t be defined by active versus passive, but it’s more complex versus simple and then on a fee scale, so an exec fund is systematic. It’s just very simple and systematic, and you can literally see the algo, as it were, as it were, or like a D.E. Shaw or Renaissance on the other side, which is, again, systematic but highly complex
[00:28:02] Robin Wigglesworth: and I think the world is just generally going from artisanal to systematic and a science data-led approach to investing and the whole idea that, you know, discretionary asset management, I think that is going to it’s, there will always be people doing it, but in 20-years-time there’ll be fewer of them.
[00:28:24] Nick Mazing: Robin, thank you for joining us.
[00:28:27] Robin Wigglesworth: No, thanks for having me on and letting me rant a little bit, Nick.
[00:28:31] Nick Mazing: This was Robin Wigglesworth, author of Trillions and Editor, the Financial Times Alphaville, who joined us today. We discussed mostly the issues arising from the growth of indexing. If you would like to learn more about the book or Robin, we’ll have the relevant links in the show notes. My name is Nick Mazing.
[00:28:46] This is Signals by Alpha Sense. You can subscribe to us on the major platforms. Thank you for listening.
