- Capitalism, Hedge Funds, The Global Political Economy, Global Finance, Offshore finance, Financial Crisis of 2008/2009, and 19 moreShadow banking, International Studies, International Political Economy, Tax Havens, Financialization, Critical international political economy, Varieties of Capitalism, Anglo-American Relations, Political Economy, Corporate Governance, Corporate Finance, International Relations, Multinational Corporations, Ownership, OWNERSHIP CONCENTRATION, ETF, exchange traded funds, investments, Structural Power, Global Political Economy, and Corporate Controledit
- Jan Fichtner is postdoctoral researcher in the CORPNET project at the University of Amsterdam. He holds a Dr. phil. f... moreJan Fichtner is postdoctoral researcher in the CORPNET project at the University of Amsterdam. He holds a Dr. phil. from the Institute for Political Science at Goethe-University Frankfurt (Germany). His research interests lie in the interdisciplinary field of International Political Economy, particularly Global Finance (concentration of corporate ownership and control, structural power, financialization, hedge funds, offshore financial centers). He has published a number of peer-reviewed articles on the subjects of hedge funds and offshore finance. In the CORPNET group he focuses on the subproject of the re-concentration of corporate ownership through the rise of very large passive asset managers, such as BlackRock and Vanguard – and their impact on corporate governance.edit
Over 25 years ago, Susan Strange urged IR scholars to include multinational corporations in their analysis. Within IR and IPE discussions, this was either mostly ignored or reflected in an empirically and methodologically unsatisfactory... more
Over 25 years ago, Susan Strange urged IR scholars to include multinational corporations in their analysis. Within IR and IPE discussions, this was either mostly ignored or reflected in an empirically and methodologically unsatisfactory way. We reiterate Strange’s call by sketching a fine-grained theoretical and empirical approach that includes both states and corporations as juxtaposed actors that interact in transnational networks inherent to the contemporary international political economy. This realistic, juxtaposed, actor- and relations-centred perspective on state and corporate power in the global system is empirically illustrated by the example of the transnationalisation of state ownership.
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Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership. Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation,... more
Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership. Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation, but are increasingly under scrutiny, for instance for enabling tax avoidance. Therefore, the identification of OFC jurisdictions has become a politicized and contested issue. We introduce a novel data-driven approach for identifying OFCs based on the global corporate ownership network, in which over 98 million firms (nodes) are connected through 71 million ownership relations. This granular firm-level network data uniquely allows identifying both sink-OFCs and conduit-OFCs. Sink-OFCs attract and retain foreign capital while conduit-OFCs are attractive intermediate destinations in the routing of international investments and enable the transfer of capital without taxation. We identify 24 sink-OFCs. In addition, a small set of five countries – the Netherlands, the United Kingdom, Ireland, Singapore and Switzerland – canalize the majority of corporate offshore investment as conduit-OFCs. Each conduit jurisdiction is specialized in a geographical area and there is significant specialization based on industrial sectors. Against the idea of OFCs as exotic small islands that cannot be regulated, we show that many sink and conduit-OFCs are highly developed countries.
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Since 2008, a massive shift has occurred from active toward passive investment strategies. The passive index fund industry is dominated by BlackRock, Vanguard, and State Street, which we call the " Big Three. " We comprehensively map the... more
Since 2008, a massive shift has occurred from active toward passive investment strategies. The passive index fund industry is dominated by BlackRock, Vanguard, and State Street, which we call the " Big Three. " We comprehensively map the ownership of the Big Three in the United States and find that together they constitute the largest shareholder in 88 percent of the S&P 500 firms. In contrast to active funds, the Big Three hold relatively illiquid and permanent ownership positions. This has led to opposing views on incentives and possibilities to actively exert shareholder power. Some argue passive investors have little shareholder power because they cannot " exit, " while others point out this gives them stronger incentives to actively influence corporations. Through an analysis of proxy vote records we find that the Big Three do utilize coordinated voting strategies and hence follow a centralized corporate governance strategy. However, they generally vote with management, except at director (re-)elections. Moreover, the Big Three may exert " hidden power " through two channels: First, via private engagements with management of invested companies; and second, because company executives could be prone to internalizing the objectives of the Big Three. We discuss how this development entails new forms of financial risk. 1 The rise of passive index funds Since the outbreak of the global financial crisis, private as well as institutional investors have massively shifted capital from expensive, actively managed mutual funds to cheap, index mutual funds and exchange traded funds (ETFs),
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The Cayman Islands is a key node in contemporary global finance, yet it is severely under-researched. This paper compiles the first 'anatomy' of the Cayman offshore financial center (OFC), utilizing all sources of publicly available data... more
The Cayman Islands is a key node in contemporary global finance, yet it is severely under-researched. This paper compiles the first 'anatomy' of the Cayman offshore financial center (OFC), utilizing all sources of publicly available data about the three main segments: banking, direct investment, and portfolio investment. The analysis is performed both diachronically to see when large inflows occurred and geographically to determine what role certain countries play in different segments. This dissection of the Cayman OFC shows that the United States is the largest counterparty in all segments with Japan playing an important role too. In fact, when excluding long-term Treasuries, Cayman is the largest holder of US securities in the world. Hedge funds are the main factor for this strong Cayman-US link. About 60 percent of global hedge fund assets are legally domiciled in Cayman – an extraordinary spatial concentration in such a tiny jurisdiction. A novel contribution to the analysis of the Cayman OFC is the introduction of the Anglo-America/Anglosphere approach. This approach provides one plausible explanation for the unparalleled rise of the Cayman OFC by seeing this jurisdiction as one node in an Anglo-American triangle together with the US and the UK, Cayman's sovereign power.
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The prediction of America’s decline is a regularly recurring phenomenon; this also pertains to the pivotal field of global finance. This paper argues that, first, we have to consider the United States together with the other Anglophone... more
The prediction of America’s decline is a regularly recurring phenomenon; this also pertains to the pivotal field of global finance. This paper argues that, first, we have to consider the United States together with the other Anglophone countries. The English-speaking countries and territories – Anglo-America – have deep common political and socio-economic roots, of which the unique global Five Eyes intelligence cooperation is merely one manifestation. In finance, New York and London (NY-LON) constitute the decision-making core of this transnational formation. Second, to analyse the highly complex phenomenon of structural power in the globalised international political economy we have to dig deeper to uncover truly meaningful data. Thus, this paper evaluates data for nine central segments of global finance from around the year 2000 to 2014. Contrary to the assertions of many declinists, these data show that Anglo-America’s dominant structural power has been persistent during this period. Moreover, four novel visualizations show that the US-UK axis is the fulcrum of the international financial system. However, contemporary global finance is characterised by a high degree of latent fragility; significant imbalances, inequalities and contradictions persist and are even likely to grow, potentially undermining the legitimacy and the stability of the whole system.
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An ownership structure dominated by blockholdings is central for ‘Rhenish’ capitalism, because it provides ‘patient capital.’ Analysis of the 160 largest listed German corporations shows that blockholdings have declined and foreign... more
An ownership structure dominated by blockholdings is central for ‘Rhenish’ capitalism, because it provides ‘patient capital.’ Analysis of the 160 largest listed German corporations shows that blockholdings have declined and foreign investors have increased. This could enable activist hedge funds – ‘impatient capital’ demanding high returns – to have greater impact on German listed companies. In order to explore this phenomenon, three case studies have been conducted. These case studies indicate that blockholders are potentially able to shield companies against hedge funds, and that impatient capital is able to gain influence over corporations that are not protected by patient blockholders – however, the behavior of blockholders and hedge funds is more complex than commonly theorized. On balance, these developments contribute to an increased internal diversity of Rhenish capitalism.
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This article argues that a nexus exists between private profit-orienteded actors (privateers and hedge funds) — being only lightly regulated by their home countries (Britain and America) — and ‘offshore’ territories located in the... more
This article argues that a nexus exists between private profit-orienteded actors (privateers and hedge funds) — being only lightly regulated by their home countries (Britain and America) — and ‘offshore’ territories located in the Caribbean and elsewhere in the Anglo-Saxon world. This article argues that the ultimate reason for this nexus is the common ‘Lockean’ state/society complex of the UK and the US. The analysis of hedge funds as privateers reveals that both benefit at the expense of others, while the geographic regions in which they are based are virtually the same — London and New York/Boston. Furthermore, this article shows that the hedge fund ‘value chain’ is clearly dominated by the US and the UK. Most hedge funds are based in Offshore Financial Centres (OFCs). While this is commonplace, by introducing the OFC-Intensity Ratio we show that the most intensive OFCs are under the sovereignty of the US and the UK.
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The rise of hedge funds from the almost unnoticed beginnings in the late 1940s to the pinnacle of global finance seventy years later is one of the most pivotal developments for the international political economy. It is the central thesis... more
The rise of hedge funds from the almost unnoticed beginnings in the late 1940s to the pinnacle of global finance seventy years later is one of the most pivotal developments for the international political economy. It is the central thesis of this paper that the rise of hedge funds can only be explained by the notion of inequality: inequality between nearly unregulated hedge funds and the regulated rest of financial market actors; inequality between offshore financial centers that provide minimal regulation and low taxation to hedge funds, and onshore jurisdiction that do not; inequality between very rich private individuals that invest in hedge funds and the „bottom 99 percent“ that do not. Two countries play a central role for the rise of hedge funds, the US and the UK. Both adhere to the paradigm of „indirect regulation“ of hedge funds, and both tolerated a drastically increased income inequality since the 1980s that fueled the rise of hedge funds. It is only in these two countries that the story of inequality that drives the rise of hedge funds could be ended.
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Financialization – broadly defined as the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy and its gov-erning institutions, both at the national... more
Financialization – broadly defined as the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy and its gov-erning institutions, both at the national and international level – is a growing field of interdisci-plinary academic debate. In contrast to some structural approaches, this paper takes an actor-centered perspective to the phenomenon of financialization. The purpose of this paper is to ex-amine in which ways hedge funds contribute to financialization. Two already identified con-duits through which financialization operates are for the first time applied to hedge funds: changes in the structure and operation of financial markets, and changes in the behavior of cor-porations. This paper finds that hedge funds drive the phenomenon of financialization in two major ways: the financialization of publicly listed corporations, and the financialization of fi-nancial and commodities markets. Hence, hedge funds can be conceived as agents of change for financialization.
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In Marcel Heires and Andreas Nölke, eds. (2013) Politische Ökonomie der Finanzialisierung. Wiesbaden: Springer VS. pp. 115-130. (in German)
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This blog post, discusses existing research on the still rather opaque topic of offshore finance. Subsequently, it is outlined how the CORPNET team is going to shed some new light on this crucial topic by analyzing transnational ownership... more
This blog post, discusses existing research on the still rather opaque topic of offshore finance. Subsequently, it is outlined how the CORPNET team is going to shed some new light on this crucial topic by analyzing transnational ownership ties of multinational corporations utilizing complex networks methods and the 'big data' provided by the Orbis database. Offshore finance is no longer the small and peripheral phenomenon it once was. During the last four decades, offshore finance has become a crucial element of the contemporary international political economy. Today, offshore financial centers (which can also be called tax havens or regulatory havens) constitute central nodes within global financial markets. Gabriel Zucman has recently estimated that financial wealth to the tune of almost US$8 trillion is held offshore – a sum that amounts to almost 50% of the GDP of the EU or the US. This causes a global tax revenue loss of approximately US$200 billion. Estimates for offshore wealth by the Tax Justice Network even range between US$21 and US$32 trillion. Arguably, high-net-worth individuals (HNWIs) and big multinational corporations (MNCs) hold the vast majority of this offshore wealth, which leads directly to questions of increasing economic inequality. The impact of offshore finance not only pertains to economic inequality but also to questions of corporate accountability and transparency – both of which are pivotal to the proper functioning of any market economy. For this reason, the Tax Justice Network does not use the term offshore financial centers or tax havens, but instead calls them secrecy jurisdictions, because secrecy and opacity are major reasons why foreign economic actors use these countries and territories. With this secrecy and lack of accountability come big risks. The corporate scandals of Enron, Olympus and Parmalat as well as the near-collapse of the large hedge fund LTCM all involved subsidiaries in tax havens. In addition, these secrecy jurisdictions have functioned as legal domiciles for the creation of complex structured financial products, such as collateralized debt obligations (CDOs) and other asset-backed securities (ABSs). According to Photis Lysandrou and Anastasia Nesvetailova, these opaque financial products have contributed to the development of the global financial crisis, or at least have aggravated it significantly.
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This paper presents the Offshore-Intensity Ratio – a simple and straightforward way to identify which countries and jurisdictions could be seen as offshore financial centres (OFCs). By setting the aggregated amount of external capital... more
This paper presents the Offshore-Intensity Ratio – a simple and straightforward way to identify which countries and jurisdictions could be seen as offshore financial centres (OFCs). By setting the aggregated amount of external capital booked in a jurisdiction in relation to the size of its domestic economy, we get a ratio that expresses the strength with which the particular jurisdiction has acted as a magnet for foreign capital. Sixteen jurisdictions are identified as probable OFCs, including the Cayman Islands, the British Virgin Islands, Bermuda and Luxembourg, but also Ireland and the Netherlands. A novel visualization shows the role of the largest offshore centres in contemporary global finance.
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This tellmap shows the real size and intensity of (offshore) financial centers. We combine data on foreign securities (Coordinated Portfolio Investment Survey by the International Monetary Fund) and on foreign deposits/loans (Locational... more
This tellmap shows the real size and intensity of (offshore) financial centers. We combine data on foreign securities (Coordinated Portfolio Investment Survey by the International Monetary Fund) and on foreign deposits/loans (Locational Banking Statistics by the Bank for International Settlements) at the end of 2011. Capturing the two by far most important components allows a reasonable approximation of the real size of international (and offshore) financial centers while avoiding double counting.
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Le Monde diplomatique, Nr. 9394 (2011). (in German)
Gewisse Karibikinseln sind der Inbegriff aller Steuerparadiese. Doch eine der besten Adressen für Briefkastenfirmen und kontrollscheue Hedgefonds ist eine Stadt im Nordosten der USA.
Gewisse Karibikinseln sind der Inbegriff aller Steuerparadiese. Doch eine der besten Adressen für Briefkastenfirmen und kontrollscheue Hedgefonds ist eine Stadt im Nordosten der USA.
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Existing studies have scrutinized the rise of states as global owners and investors, yet we still lack a good understanding of what state investment does in a globalized economy, especially in host states. Comparative capitalisms research... more
Existing studies have scrutinized the rise of states as global owners and investors, yet we still lack a good understanding of what state investment does in a globalized economy, especially in host states. Comparative capitalisms research has analyzed foreign state investment as a potential source of patient capital for coordinated and mixed-market economies. However, this patient capital framework cannot explain the recent surge of protectionist sentiments, even among the ‘good hosts’ of state-led investment. Therefore, we go beyond the patient capital argument and develop a novel framework centered on the globalized nature of foreign state investment. We create and empirically illustrate a novel typology based on different modes of cross-border state investment – from financial to strategic – and different categories of host states. Our results provide a new pathway to study the rise and effects of cross-border state investment in the twenty-first century.
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This blog post, discusses existing research on the still rather opaque topic of offshore finance. Subsequently, it is outlined how the CORPNET team is going to shed some new light on this crucial topic by analyzing transnational ownership... more
This blog post, discusses existing research on the still rather opaque topic of offshore finance. Subsequently, it is outlined how the CORPNET team is going to shed some new light on this crucial topic by analyzing transnational ownership ties of multinational corporations utilizing complex networks methods and the 'big data' provided by the Orbis database. Offshore finance is no longer the small and peripheral phenomenon it once was. During the last four decades, offshore finance has become a crucial element of the contemporary international political economy. Today, offshore financial centers (which can also be called tax havens or regulatory havens) constitute central nodes within global financial markets. Gabriel Zucman has recently estimated that financial wealth to the tune of almost US$8 trillion is held offshore – a sum that amounts to almost 50% of the GDP of the EU or the US. This causes a global tax revenue loss of approximately US$200 billion. Estimates for offshore wealth by the Tax Justice Network even range between US$21 and US$32 trillion. Arguably, high-net-worth individuals (HNWIs) and big multinational corporations (MNCs) hold the vast majority of this offshore wealth, which leads directly to questions of increasing economic inequality. The impact of offshore finance not only pertains to economic inequality but also to questions of corporate accountability and transparency – both of which are pivotal to the proper functioning of any market economy. For this reason, the Tax Justice Network does not use the term offshore financial centers or tax havens, but instead calls them secrecy jurisdictions, because secrecy and opacity are major reasons why foreign economic actors use these countries and territories. With this secrecy and lack of accountability come big risks. The corporate scandals of Enron, Olympus and Parmalat as well as the near-collapse of the large hedge fund LTCM all involved subsidiaries in tax havens. In addition, these secrecy jurisdictions have functioned as legal domiciles for the creation of complex structured financial products, such as collateralized debt obligations (CDOs) and other asset-backed securities (ABSs). According to Photis Lysandrou and Anastasia Nesvetailova, these opaque financial products have contributed to the development of the global financial crisis, or at least have aggravated it significantly.
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Analysing how millions of multinational corporations structure their global ownership chains reveals that Cayman acts as a 'sink' offshore financial centre where foreign capital accumulates and data trails often end, writes Jan... more
Analysing how millions of multinational corporations structure their global ownership chains reveals that Cayman acts as a 'sink' offshore financial centre where foreign capital accumulates and data trails often end, writes Jan Fichtner. Try to guess what the top destination of outward foreign direct investment (FDI) from Brazil is! Could it be the United States as the largest economy in ...
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An ownership structure dominated by blockholdings is central for ‘Rhenish’ capitalism, because it provides ‘patient capital’. Analysis of the 160 largest listed German corporations shows that blockholdings have declined and foreign... more
An ownership structure dominated by blockholdings is central for ‘Rhenish’ capitalism, because it provides ‘patient capital’. Analysis of the 160 largest listed German corporations shows that blockholdings have declined and foreign investors have increased. This could enable activist hedge funds – ‘impatient capital’ demanding high returns – to have greater impact on German listed companies. In order to explore this phenomenon, three case studies have been conducted. These case studies indicate that blockholders are potentially able to shield companies against hedge funds, and that impatient capital is able to gain influence over corporations that are not protected by patient blockholders – however, the behaviour of blockholders and hedge funds is more complex than commonly theorized. On balance, these developments contribute to an increased internal diversity of Rhenish capitalism.
Research Interests:
The prediction of America’s decline is a regularly recurring phenomenon; this also pertains to the pivotal field of global finance. This article argues that, first we have to consider the United States together with the other Anglophone... more
The prediction of America’s decline is a regularly recurring phenomenon; this also pertains to the pivotal field of global finance. This article argues that, first we have to consider the United States together with the other Anglophone countries. The English-speaking countries and territories – Anglo-America – have deep common political and socioeconomic roots, of which the unique global Five Eyes intelligence cooperation is merely one manifestation. In finance, New York and London (NY-LON) constitute the decision-making core of this transnational formation. Second, to analyse the highly complex phenomenon of structural power in the globalised international political economy we have to dig deeper to uncover truly meaningful data. Thus, this article evaluates data for nine central segments of global finance from around the year 2000 to 2014. Contrary to the assertions of many declinists, these data show that Anglo-America’s dominant structural power has been persistent during this p...
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Die Diskussion uber Finanzialisierung – verstanden als die zunehmende Dominanz des Finanzsektors, der Finanzmarkte sowie von Finanzmotiven und Finanzeliten (Epstein 2005) – hat sich bislang erstaunlich wenig mit der Rolle einzelner... more
Die Diskussion uber Finanzialisierung – verstanden als die zunehmende Dominanz des Finanzsektors, der Finanzmarkte sowie von Finanzmotiven und Finanzeliten (Epstein 2005) – hat sich bislang erstaunlich wenig mit der Rolle einzelner Staaten fur die Ausbreitung und Intensivierung dieses Phanomens beschaftigt. Viele Beitrage behandeln Finanzialisierung implizit als funktionalen bzw. systemischen Prozess, der zum Grosteil unabhangig von staatlichen Akteuren und Interessen wirkt. Oft wird dabei in simplifizierender Art und Weise von „den globalen Finanzmarkten“ als Triebfeder der Finanzialisierung gesprochen.
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Purpose – The purpose of this paper is to examine in which ways hedge funds contribute to financialization. Design/methodology/approach – Two already identified conduits through which financialization operates are applied to hedge funds.... more
Purpose – The purpose of this paper is to examine in which ways hedge funds contribute to financialization. Design/methodology/approach – Two already identified conduits through which financialization operates are applied to hedge funds. Findings – The paper finds that hedge funds drive the phenomenon of financialization in two major ways, i.e. the financialization of corporations, and the financialization of markets. Hence, hedge funds can be conceived as agents of change for financialization. Research limitations/implications – There are indications that hedge funds possess disciplinary power. Future research should address this pivotal point, even though such power will be difficult to prove empirically. Social implications – Hedge funds have been found to potentially increase market volatility. In times of crisis, stricter regulation of these investors that take excessive risks seems prudent. Originality/value – Through linking “hedge funds” with “financialization” this paper cl...
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This article argues that a nexus exists between private profit-orienteded actors (privateers and hedge funds) — being only lightly regulated by their home countries (Britain and America) — and ‘offshore’ territories located in the... more
This article argues that a nexus exists between private profit-orienteded actors (privateers and hedge funds) — being only lightly regulated by their home countries (Britain and America) — and ‘offshore’ territories located in the Caribbean and elsewhere in the Anglo-Saxon world. This article argues that the ultimate reason for this nexus is the common ‘Lockean’ state/society complex of the UK and the US. The analysis of hedge funds as privateers reveals that both benefit at the expense of others, while the geographic regions in which they are based are virtually the same — London and New York/Boston. Furthermore, this article shows that the hedge fund ‘value chain’ is clearly dominated by the US and the UK. Most hedge funds are based in Offshore Financial Centres (OFCs). While this is commonplace, by introducing the OFC-Intensity Ratio we show that the most intensive OFCs are under the sovereignty of the US and the UK.
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Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership. Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation,... more
Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership. Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation, but are increasingly under scrutiny, for instance for enabling tax avoidance. Therefore, the identification of OFC jurisdictions has become a politicized and contested issue. We introduce a novel data-driven approach for identifying OFCs based on the global corporate ownership network, in which over 98 million firms (nodes) are connected through 71 million ownership relations. This granular firm-level network data uniquely allows identifying both sink-OFCs and conduit-OFCs. Sink-OFCs attract and retain foreign capital while conduit-OFCs are attractive intermediate destinations in the routing of international investments and enable the transfer of capital without taxation. We identify 24 sink-OFCs. In addition, a small set of five countries - the Nethe...
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During the last decades, institutional investors gained an ever more important position as managers of assets and owners of corporations. By demanding (short-term) shareholder value, some of them have driven the financialization of... more
During the last decades, institutional investors gained an ever more important position as managers of assets and owners of corporations. By demanding (short-term) shareholder value, some of them have driven the financialization of corporations and of the financial sector itself. This chapter first characterizes the specific roles that private equity funds, hedge funds, and mutual funds have played in this development. It then moves on to focus on one group of institutional investors that is rapidly becoming a pivotal factor for corporate control in many countries – the “Big Three” large passive asset managers BlackRock, Vanguard and State Street.
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A major shift toward passively managed index funds in recent years has led to the re-concentration of corporate ownership in the hands of just three large asset management firms, the Big Three: BlackRock, Vanguard and State Street. We... more
A major shift toward passively managed index funds in recent years has led to the re-concentration of corporate ownership in the hands of just three large asset management firms, the Big Three: BlackRock, Vanguard and State Street. We propose that this trend has re-structured ownership in capital markets. Adopting a contractual view to the corporate share, we re-define share holding and suggest that the New Mandate Owners in fact hold the essence of corporate power, as their aggregated positions capture the core element of the franchise of corporate voting.
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The rise of hedge funds from the almost unnoticed beginnings in the late 1940s to the pinnacle of global finance seventy years later is one of the most pivotal developments for the international political economy. It is the central thesis... more
The rise of hedge funds from the almost unnoticed beginnings in the late 1940s to the pinnacle of global finance seventy years later is one of the most pivotal developments for the international political economy. It is the central thesis of this paper that the rise of hedge funds can only be explained by the notion of inequality: inequality between nearly unregulated hedge funds and the regulated rest of financial market actors; inequality between offshore financial centers that provide minimal regulation and low taxation to hedge funds, and onshore jurisdiction that do not; inequality between very rich private individuals that invest in hedge funds and the „bottom 99 percent“ that do not. Two countries play a central role for the rise of hedge funds, the US and the UK. Both adhere to the paradigm of „indirect regulation“ of hedge funds, and both tolerated a drastically increased income inequality since the 1980s that fueled the rise of hedge funds. It is only in these two countrie...
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The release of classified documents in the past years have offered a rare glimpse into the opaque world of tax havens and their role in the global economy. Although the political, economic and social implications related to these... more
The release of classified documents in the past years have offered a rare glimpse into the opaque world of tax havens and their role in the global economy. Although the political, economic and social implications related to these financial secrecy jurisdictions are known, their role in supporting economic activities with potentially detrimental environmental consequences have until now been largely ignored. Here, we combine quantitative analysis with case descriptions to elaborate and quantify the connections between tax havens and the environment, both in global fisheries and the Brazilian Amazon. We show that while only 4% of all registered fishing vessels are currently flagged in a tax haven, 70% of the known vessels implicated in illegal, unreported and unregulated fishing are, or have been, flagged under a tax haven jurisdiction. We also find that between October 2000 and August 2011, 68% of all investigated foreign capital to nine focal companies in the soy and beef sectors in...
ABSTRACT The rise of hedge funds from the almost unnoticed beginnings in the late 1940s to the pinnacle of global finance seventy years later is one of the most pivotal developments for the international political economy. It is the... more
ABSTRACT The rise of hedge funds from the almost unnoticed beginnings in the late 1940s to the pinnacle of global finance seventy years later is one of the most pivotal developments for the international political economy. It is the central thesis of this paper that the rise of hedge funds can only be explained by the notion of inequality: inequality between nearly unregulated hedge funds and the regulated rest of financial market actors; inequal-ity between offshore financial centers that provide minimal regulation and low taxation to hedge funds, and onshore jurisdiction that do not; inequality between very rich private individuals that invest in hedge funds and the "bottom 99 percent" that do not. Two countries play a central role for the rise of hedge funds, the US and the UK. Both adhere to the paradigm of "indirect regulation" of hedge funds, and both tolerated a drastically increased income inequality since the 1980s that fueled the rise of hedge funds. It is only in these two countries that the story of inequality that drives the rise of hedge funds could be ended.
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ABSTRACT Jan Fichtner and Benjamin D. Hennig chart the size of the foreign assets in the world's largest offshore financial centres.
Since the global financial crisis, there is a massive shift of assets towards index funds. Rather than picking stocks, index funds replicate stock indices such as the S&P 500. But where do these indices actually come from? This paper... more
Since the global financial crisis, there is a massive shift of assets towards index funds. Rather than picking stocks, index funds replicate stock indices such as the S&P 500. But where do these indices actually come from? This paper analyzes the politico-economic role of index providers, a small group of highly profitable firms including MSCI, S&P DJI, and FTSE Russell, and develops a research agenda from an IPE perspective. We argue that these index providers have become actors that exercise growing private authority as they steer investments through the indices they create and maintain. While technical expertise is a precondition, their brand is the primary source of index provider authority, which is entrenched through network externalities. Rather than a purely technical exercise, constructing indices is inherently political. Which companies or countries are included into an index or excluded (i.e. receive investment in- or outflows) is based on criteria defined by index provid...
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Since the global financial crisis, there is a massive shift of assets towards index funds. Rather than picking stocks, index funds replicate stock indices such as the S&P 500. But where do these indices actually come from? This paper... more
Since the global financial crisis, there is a massive shift of assets towards index funds. Rather than picking stocks, index funds replicate stock indices such as the S&P 500. But where do these indices actually come from? This paper analyzes the politico-economic role of index providers, a small group of highly profitable firms including MSCI, S&P DJI, and FTSE Russell, and develops a research agenda from an IPE perspective. We argue that these index providers have become actors that exercise growing private authority as they steer investments through the indices they create and maintain. While technical expertise is a precondition, their brand is the primary source of index provider authority, which is entrenched through network externalities. Rather than a purely technical exercise, constructing indices is inherently political. Which companies or countries are included into an index or excluded (i.e. receive investment in- or outflows) is based on criteria defined by index provid...
Research Interests:
Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership. Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation,... more
Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership. Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation, but are increasingly under scrutiny, for instance for enabling tax avoidance. Therefore, the identification of OFC jurisdictions has become a politicized and contested issue. We introduce a novel data-driven approach for identifying OFCs based on the global corporate ownership network, in which over 98 million firms (nodes) are connected through 71 million ownership relations. This granular firm-level network data uniquely allows identifying both sink-OFCs and conduit-OFCs. Sink-OFCs attract and retain foreign capital while conduit-OFCs are attractive intermediate destinations in the routing of international investments and enable the transfer of capital without taxation. We identify 24 sink-OFCs. In addition, a small set of five countries – the Netherlands, the United Kingdom, Ireland, Singapore and Switzerland – canalize the majority of corporate offshore investment as conduit-OFCs. Each conduit jurisdiction is specialized in a geographical area and there is significant specialization based on industrial sectors. Against the idea of OFCs as exotic small islands that cannot be regulated, we show that many sink and conduit-OFCs are highly developed countries.
Research Interests:
Research Interests:
Environmental, social and governance (ESG) funds are among the fastest growing investment styles. ESG funds can be used either to only mitigate risk (input ESG) or to go beyond that to create impact (output ESG). We argue that the... more
Environmental, social and governance (ESG) funds are among the fastest growing investment styles. ESG funds can be used either to only mitigate risk (input ESG) or to go beyond that to create impact (output ESG). We argue that the governance by ESG is characterised by three potential transmission mechanisms: ratings, shareholder engagement and capital allocation. These mechanisms can create sustainability impact or constitute ‘ESG gaps’, if they remain ineffective or unutilised. Based on financial data, an investigation of ESG methodologies and expert interviews, we provide a novel market analysis of the ESG industry, focusing primarily on the capital allocation mechanism. Our findings highlight that while ESG indices could have an impact, most currently do not meaningfully facilitate sustainability – we call this the ‘ESG capital allocation gap’. This has important implications because without effective transmission mechanisms, ESG funds cannot have sustainability impact on companies and the real economy.