Conner Brown examines how private index committees shape capital flows and calls for transparent, accountable rules for broad-market benchmarks.

Executive Summary

Every year, tens of millions of Americans invest in "passive" funds to get exposure to "the market." What many don't realize is that somewhere upstream, private Wall Street committees they have likely never heard of decide which companies count as "the market" and which companies are excluded.

Today, a handful of private firms known as "Index Providers" decide which lawful public companies belong in the portfolios of American savers. Funds tracking these index provider benchmarks have grown dramatically in recent years.¹ Now, 54 percent of all long-term fund assets in the United States overwhelmingly follow benchmarks prepared by just three firms.² MSCI alone reports $21 trillion benchmarked to its indexes.³

The rapid growth of assets following these benchmarks has placed index providers in an incredibly powerful market position. They determine the constituents that many firms choose to follow; small changes to their standards can shift billions of dollars in capital from one section of the market to another or remove passive capital from companies altogether.⁴

This paper examines how that power developed, how MSCIʼs proposed non-operating-company screen would exercise it, how the firmʼs ESG history bears on its claims of neutrality, and why discretionary exclusions from broad-market indexes can become a strategic vulnerability for the United States.

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