AUDIT 15 FUN Ep. 226 - The Big Three - Brian Kuenzi
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Dec 4, 2025 In this discussion, finance expert Brian Kuenzi delves into the seismic shifts in capital markets due to the rise of passive ownership. He highlights how the dominance of the 'Big Three'—Vanguard, BlackRock, and State Street—impacts internal audits, often leading to apathy in compliance priorities. Brian explains how passive investing creates inelastic markets that detach prices from fundamentals. He also explores the reduction in risk functions' influence as companies prioritize stock performance over governance.
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Passive Ownership Dominates Markets
- Passive investing now owns a majority of equity and grew from single digits to over 50% over decades.
- That structural shift changes incentives across capital markets and corporate behavior.
Flows Make Markets Inelastic
- Passive funds mechanically buy or sell based on flows, creating inelastic markets that ignore firm fundamentals.
- That means large index owners will buy a company's stock regardless of its CEO or operations.
Risk Functions Face Growing Apathy
- Internal audit and ERM face rising apathy because executives focus more on flows and stock movement than on traditional diligence.
- When price becomes driven by passive flows, risk functions lose influence over resource allocation.
