What, exactly, is the relationship between BlackRock and the retail investors who own shares in the index funds that it manages? This issue came to mind when reading Larry Fink’s 2022 letter to chief executive officers (CEOs). In the letter, he referred to retail investors as clients, but I don’t believe that is the way they are currently being treated.
The relationship between BlackRock and retail investors is somewhat complex. It begins with BlackRock contracting with mutual funds and exchange-traded funds (ETFs) to manage their portfolios. These investment funds are the shareholders. BlackRock’s role is limited to that of adviser. It does not have an economic interest in the underlying securities that are held in portfolios. Moreover, not having an economic interest means that BlackRock has little incentive in becoming informed about the operations of the companies whose stocks make up the portfolios that it manages.
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