Giant asset managers have become powerful actors in corporate America, fueling widespread concern that these Wall Street titans will capture the government by translating their economic might into political influence.  In a new article, we identify an increasingly pressing concern that runs in the opposite direction: the risk of reverse capture, whereby government actors deploy regulatory leverage to compel large asset managers to use their corporate governance power to advance the federal government’s policy agenda. This risk of “asset manager capture” is dramatically exacerbated by the persistent rise of presidential power, especially in an era of renewed industrial policy, geopolitical competition, and increased governmental willingness to steer private markets toward public objectives.

Asset managers’ striking pivot on ESG investing illustrates this risk. Starting in 2018, the “Big Three” asset managers of BlackRock, Vanguard, and State Street Global Advisors pressured portfolio companies to adopt climate-related disclosures, commit to cutting emissions, and pursue other social objectives. Asset managers justified these actions as compelled by their fiduciary duties to their clients. But after political forces began pushing in the opposite direction (culminating in President Trump’s second election), the Big Three changed course—they left investor associations promoting ESG goals, eliminated pro-ESG language from their investor communications, and slowed support for ESG shareholder proposals. And their change in priorities had a significant impact on corporate priorities: Companies dropped DEI programs and scaled back climate commitments.

We are not the first to observe that asset managers’ stewardship priorities may be vulnerable to political pressure. But our analysis highlights the increased risk that comes from the interplay between asset manager influence and expansive presidential power. U.S. presidential administrations have become increasingly willing and able to influence markets, direct regulatory priorities, and pursue policy goals through executive action. And a powerful president, we show, can harness asset manager stewardship (or its absence) to implement sweeping policy goals. The federal government can exert influence by threatening to take action that would harm the asset manager’s business model, such as by bringing  antitrust actions or restricting the size of their ownership stakes. The government can also offer inducements in the form of regulation that opens new business opportunities for asset managers. Moreover, asset managers become more appealing targets for capture as they grow. Large asset managers not only have greater influence over the market, but their scale and market concentration lend legitimacy to government interventions aimed at curbing their power.

We recognize, however, that there are some limits to this reverse capture dynamic. Market forces and fiduciary duties may constrain the most overt or value-destroying forms of political influence, but they are unlikely to prevent subtler forms of pressure, especially when asset managers can plausibly characterize their actions as consistent with long-term value maximization. Nor would asset managers’ reluctance to pursue firm-specific stewardship eliminate the risk of capture: Asset managers could adopt market-wide stewardship policies aligned with an administration’s industrial or social priorities. And while the ESG episode demonstrates negative capture (in which the government pressures asset managers to abandon stewardship policies), the mechanisms we identify also allow for affirmative capture, or inducing asset managers to pursue stewardship policies favored by the government.

We further argue that this interplay between asset managers and the government presents risks to democracy. In a traditional system of checks and balances, interventions affecting asset managers require Congress to enact legislation, or independent agencies to engage in lengthy rulemaking or enforcement,  which limits the ability of elected officials to exert immediate pressure. As presidential authority expands, however, administrations gain greater ability to translate regulatory threats and inducements into immediate action, allowing the executive to shape the behavior of asset managers and the corporations they influence more effectively.

Simply put, asset manager capture is policymaking without public notice, judicial review, or legislative debate. It allows the government to pursue its economic agenda while avoiding proper regulatory procedures. Of course, asset manager capture is also a form of agency cost that raises concerns for investors. When asset managers choose stewardship policies that mitigate the risk of unfavorable regulation, they put their own interests ahead of their investors.

We also examine the geopolitical implications of reverse capture for American financial dominance. We show how the vulnerability of U.S. asset managers to domestic political pressure threatens their international competitiveness, particularly among foreign pension funds and global institutional investors. As foreign asset owners recognize that U.S. asset managers may tailor stewardship priorities to accommodate executive-branch preferences, reverse capture risks triggering regulatory backlash abroad and accelerating the deglobalization of financial intermediation.

To counter these risks, we advance a simple policy change: Interpret asset manager fiduciary duties more narrowly. Asset managers are already bound to act in their investors’ best interests, but that standard is broad enough that any given stewardship change is difficult to attribute to political influence alone, and thus, the threat of investor litigation is unlikely to deter asset manager capture. A narrower conception of fiduciary duty that limits asset managers’ discretion to pursue objectives beyond maximizing financial returns would make it easier for courts and clients to hold asset managers accountable and reduce the risk that government pressure will shape stewardship decisions. Structural reforms and market developments, such as limiting the size of asset managers and the practice of pass-through voting, could also reduce the susceptibility of asset managers to governmental co-option, though these measures may also weaken investor protection and increase costs for investors.

More broadly, our analysis complicates the conventional view of the interplay between concentrated economic power and the government. The classic account contends that businesses will leverage economic power to capture government policy, thereby posing a threat to democracy. Our article however, reveals a distinct dynamic, with significant implications for democracy, investor protection, and corporate governance: We show that the government has both the ability and incentive to pressure the largest asset managers to use their influence over corporate America to advance the government’s agenda. As presidential power continues to expand, governments may increasingly view large asset managers not merely as regulated entities, but as instruments through which policy objectives can be pursued. Understanding the risk of reverse capture is therefore likely to become increasingly important.

Assaf Hamdani is a professor of corporate law at the University of Oxford, and Dorothy S. Lund is Columbia 1982 Alumna Professor of Law at Columbia Law School. This post is based on their recent article, “Asset Manager Capture,” available here.