A benchmark is a measurement until enough capital follows it. Then it’s an allocation, and no one elected the allocator.
Garvin Jabusch | Co-Founder & CIO, Green Alpha Advisors dba Next Economy Investments | August 2026
Two essays crossed my desk on the same day this week, and neither one mentions asset management. Cory Doctorow published a piece arguing that Google, the internet’s dominant intermediary, has become an “absentee landlord,” too big to fail, too big to jail, and above all too big to care (Pluralistic, August 2026). The same morning, Keyana Sapp of Worse on Purpose published her publication’s independence charter, built around a single devastating observation about product reviews: “the moment a recommendation pays the recommender, it stops being a recommendation.” Past that point, she writes, it’s simply an ad.
Doctorow is writing about search. Sapp is writing about air purifiers (I was reading it originally because as a frequent outdoor runner I kind of obsess on air quality). But together they’ve described, more precisely than most finance writing manages, exactly what has happened to the machinery that allocates the world’s equity capital.
This is an essay about index providers, passive investing, and what happens to an economy when its largest capital-allocation mechanism is a measurement instrument that got promoted, without an interview, without a mandate, and without a fiduciary duty, into the most powerful investment committee on Earth.
I run an active equity firm, so you should discount my incentives accordingly. I’ll try to earn back that discount honestly: by presenting the strongest case for the indexed status quo before explaining precisely where it fails. When you come at the crown, you’d better be airtight.
The intermediary’s curse
Start with the pattern Doctorow borrows from Tim Wu: every intermediary begins by serving the two sides it connects, and every sufficiently dominant intermediary eventually discovers that its position between those sides is more profitably exploited than honored. Wu calls the end-state “Main Character Syndrome.” The intermediary stops being the stage and starts being the show.
Sapp documents the same disease in consumer media. Product reviews were once a service to readers. Then came the affiliate link, which is a tracking URL that pays the reviewer a commission on every purchase, and the customer quietly changed. She cites research showing that just 16 media companies, operating over 580 brands, hold the first page of Google for 85% of ten thousand product-review searches, churning out “best-of” lists faster than anyone could actually test products. The recommendation engine still looks like it serves the reader. Its revenue says otherwise.
Now, think about comparing that pattern against the benchmark index.
What a benchmark was, and what it became
A stock index began life as a measurement instrument. Charles Dow built his average in 1896 to describe the market, the way a thermometer describes a fever. For most of the twentieth century, that’s what indices did: they were the yardstick against which active managers were judged. Useful, neutral, boring.
Then the money started tracking the yardstick. First at a trickle after Bogle’s 1976 launch of the first retail index fund; then a flood. By the end of 2023, passive funds held more assets than active funds in the United States for the first time, roughly $13.3 trillion, and globally, passive AUM (assets under management) overtook active in 2024, and the share is still climbing.
Here is the pivot point nobody, possibly not even Bogle, deliberately chose: the moment trillions of dollars contractually replicate an index, the index stops being a measurement and becomes an allocation. The thermometer is now setting the temperature. Add a company to the S&P 500 and index funds must buy it, whatever the price. Remove it and they must sell. The yardstick has become one of the largest marginal buyers of equities in human history.
And who runs the yardstick? An oligopoly. The five largest index providers, S&P Dow Jones, CRSP, FTSE Russell, MSCI, and Nasdaq, control roughly 95% of the U.S. equity ETF market, with an industry concentration (HHI ~3,300) that the Justice Department’s own guidelines classify as highly concentrated. Index providers collectively pulled in more than $6.5 billion in revenue in 2023 at profit margins of 60–70%; the S&P 500 alone is tracked by trillions of dollars, generating licensing fees for S&P Global worth hundreds of millions per year.
Read that margin figure again, and then read Sapp’s sentence again. Index providers are not paid for the index being right about anything. They are paid for the index being tracked, and licensing fees scale with the assets replicating the product. The recommendation pays the recommender. Cap-weighting, then, is the affiliate link of asset management.
Oxford business law scholars studying this arrangement note the deep strangeness of it: the flagship products are “merely market-capitalization-weighted portfolios without meaningful creative input,” yet they command software-company margins because the brand is embedded in mandates, investment policy statements, and the plumbing of retirement itself. That is not a moat built from insight. It’s a moat built from default.
The plumbing allocates so you don’t have to, and effectively, you can’t
Defenders of indexing describe it as the democratization of choice. Look closely and you’ll find remarkably little choosing going on.
At the retail level, allocation happens before any decision is made. Target-date defaults, 401(k) menus, robo-advisors, the choice architecture routes household savings into cap-weighted index trackers as automatically as Google’s answer box routes a query to a product that has paid to be your top result. You didn’t pick five hundred companies. You picked a box on an HR form, and a committee in Manhattan picked the companies.
The institutional version is subtler and, I’d argue, worse. Somewhere in the last few decades, tracking error, historical performance deviation from a benchmark, was enshrined as the working definition of risk itself. Investment policy statements are written against benchmarks. Consultants screen against benchmarks. Careers end over benchmarks. The result is that even nominally active institutional money orbits the index at low altitude, and the index committee, an opaque, discretionary body inside a for-profit licensing company, owing fiduciary duty to no investor anywhere, has become a de facto capital allocator at civilizational scale.
When SpaceX went public in June 2026, the yardstick didn’t merely measure the event; it redrew its own markings to admit it. Nasdaq and FTSE Russell amended their index inclusion methodologies in early 2026, in explicit anticipation of the mega-listing, cutting the waiting period from three months to roughly fifteen trading days, and SpaceX entered the Nasdaq-100 on July 7, 2026, fifteen trading days after listing, a change that triggered an estimated $22 to $27 billion in automatic buying across Nasdaq-100 and Russell index trackers. Even CME Group’s own commentary conceded that SpaceX’s price discovery “may be driven less by fundamentals and more by supply-demand imbalances.” The index wasn’t measuring the market. It was moving it, after first amending itself to do so.
Then there’s stewardship, where Doctorow’s absentee-landlord metaphor stops being a metaphor. The Big Three passive managers, BlackRock, Vanguard, State Street, together constitute the largest shareholder in roughly 88% of S&P 500 companies and cast about a quarter of the votes at those companies’ shareholder meetings. The stewardship teams doing that voting number in the dozens of people per firm, casting votes at over 40,000 shareholder meetings annually, a workload that makes genuine company-level judgment arithmetically impossible and standardized checklist voting inevitable. The results look like what you’d expect from a landlord who never visits the property: in the 2025 proxy season, the Big Three supported 98.7% of management-sponsored resolutions and 7.5% of shareholder-sponsored ones. They cannot sell, the index forbids it, and they will not dissent. That is not ownership. That is absenteeism.
That is the anatomy of the machine: a measurement instrument promoted into the allocator, an oligopoly paid for being tracked rather than for being right, and an ownership function that has quietly stopped owning. Anatomy, though, is the easy part. The question that actually matters is physiological: what does this machine do to the economy’s forward production function, to the direction of the marginal dollar and the future it can finance? There is a serious case that the answer is “less than you’d fear, and some genuine good.” In Part 2, I’ll make that case as strongly as its best advocates would, and then show you the one place it breaks.
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