MUTUAL FUNDS HAVE $16 TRILLION

“. . .  what’s really going on? Something much simpler: asset managers are just managing much more money than they used to, because there’s much more capital in the markets than there once was. As recently as 1990, hedge funds managed a total of $38.9 billion. Today, it’s closer to $3 trillion. Mutual funds in the US had $1.6 trillion in assets in 1992. Today, it’s more than $16 trillion. And that means that an asset manager today can get paid far better than an asset manager was twenty years ago, even without doing a better job.

“This doesn’t mean that asset managers or corporate executives ‘deserve’ what they earn. In fact, there’s no convincing evidence that CEOs are any better, in relative terms, than they once were, and plenty of evidence that they are paid more than they need to be, in view of their performance. Similarly, asset managers haven’t gotten better at beating the market. The point, though, is that attributing the rise in their pay to corruption, or bad rules, doesn’t get us that far. More important, probably, has been the rise of ideological assumptions about the indispensability of CEOs, and changes in social norms that made it seem like executives should take whatever they could get. ([Joseph] Stiglitz alludes to these in The Price of Inequality, writing, ‘Norms of what was “fair” changed, too.”) Discussions of shifts in norms often become what the economist Robert Solow once called a ‘blaze of amateur sociology.’ But that doesn’t mean we can afford to ignore those shifts, either, since the rise of the one percent has been propelled by ideological changes as much as by economic or regulatory ones.”

James Surowiecki, “Why the Rich Are So Much Richer,” in the New York Review, September 24, 2015, pp: 32-36.