This paper – available here – criticises arguments for increased antitrust intervention against institutional investors.
The paper begins by identifying its target: “a line of new economics research that claims to show theoretically and empirically that concentration of shareholdings in the hands of diversified investors has substantial anti-competitive effects in concentrated markets”, and subsequent legal scholarship that interprets this economic research to mean that the practices of institutional investors infringe competition law, or should, in any event, be subject antitrust rules.
- The first half of the paper develops a number of methodological criticisms of existing theoretical and empirical analyses of the portfolio strategies adopted by institutional investors. These criticisms are said to put in doubt a number of conclusions regarding the extent to which common ownership makes a difference to competition in the market – and, by extension, the justifications for antitrust intervention against institutional investors.
- Part II then analyses the legal implications of the economic evidence, and concludes that holdings by diversified funds do not violate (US federal) antitrust law. According to the authors, the primary effect of legal proposals to apply antitrust intervention against institutional investors would be to drive institutional investors back towards their traditional passivity in corporate governance, which would allow institutional investors to take advantage of the statutory “solely for investment” safe harbour.
- Part III changes gears from critique to proposal. Given the ever increasing role of institutional investors in corporate governance, the authors think that developing appropriate antitrust guidelines is critical, and suggest the adoption of guidelines applicable to institutional investors in concentrated industries and to their involvement in corporate governance. To me at least, however, it is not clear how the proposed guidelines are different from rules about the acquisition of control – the authors propose that the guidelines should create a safe harbour for investors who hold 15% or less of a company, who do not have board representation, and who engage in no more than “normal” corporate governance activities. Part IV then concludes, apparently because a section called “conclusions” must be inserted regardless of how meaningless that section may be.
The paper provides a good indication of what the terms of the debate on how competition law should treat common ownership below control levels are likely to be. it seems that such a debate will likely include discussions about the role of safe harbours, in addition to discussions on whether there should be a duty to notify the acquisition of minority shareholdings.