Gone are the days of small-scale investment - the rise of institutional investors has changed the game completely. In 1950, only 6% of publicly traded US companies were owned by institutional investors, but fast forward to 2017 and that number has skyrocketed to 65%.

The "Big Three" - BlackRock, Vanguard, and State Street Global Investors - hold a significant portion of the country's wealth, with more than 20% of S&P 500 shares under their control, as compared to 5 percent in 1998. But with this concentration of ownership comes the question - has there been a concentration of political influence as well?

Top managers at fund families like Blackrock don’t necessarily own a lot of stock themselves, but they effectively control trillions of dollars of investors’ shareholdings.

Traditionally, it was believed that companies’ political strategies were simply an extension of their profit-maximizing business strategies. However, new research by Professors Bertrand, Bombardini, Fisman, Trebbi, and Yegen challenges this assumption. They studied 574 institutional investors, with a total equity investments of $30 trillion, and the political donations made by 2,456 companies in their portfolios between 1980 and 2018.

Their findings were striking: when large institutional investors make a block purchase in a company, there is a 31% increase in the likelihood that both the investor and the company will donate to the same politician. On the other hand, when divestments occur, the correlation in political giving decreases.

This influence could be unintentional - perhaps portfolio companies are trying to cater to the preferences of their investors in hopes of gaining their support, for example in important votes at shareholder meetings. However, consistent with a more active voice from institutional investors, the correlation in political giving increases even more sharply after an investor gets a seat on the board. In particular, in a specification that captures both the board seat and acquisition effects, the effect of an acquisition with a board seat is more than three times that of an acquisition alone.

So what drives this political influence? It could be for financial gain - perhaps institutional investors are trying to influence the legislative and regulatory process for profit. Or, it could be a reflection of the personal politics of the asset management company’s managers and owners. If these investors are more partisan in their own political giving, the convergence in political giving among portfolio firms is more pronounced. This result suggests an amplification of the personal politics of those that run asset management companies.

Campaign finance laws aim to limit the influence of individuals over the political process, but these findings indicate that concerns over institutional investors’ takeover of US corporations should extend to the political sphere as well. The power of investment is shaping the future, and it’s time to pay attention.