An asset manager can vote shares it doesn't own for itself

How an index fund becomes a major shareholder

An index fund is built to track a market index, a list of companies assembled according to set rules. Rather than deciding which shares will outperform, the fund buys the shares needed to mirror that list. If a company makes up a larger share of the index, the fund generally holds more of it; if the index changes, the fund adjusts its holdings.

Investors supply the money, but an asset manager operates the fund and holds or administers the shares on its behalf. Because one manager can run funds for millions of investors, its combined holdings can add up to substantial stakes across a large number of companies. The breadth comes from following the market, not from a decision to acquire each company or direct its business.

Ownership is not the same as control

A shareholder can have a say in certain company decisions, including by voting on board members and other matters put to shareholders. Asset managers may cast those votes for shares held in their funds, giving their choices weight even when no single fund owns a controlling stake. Company executives and boards still make day-to-day decisions, and other shareholders also have votes.

That creates a distinctive kind of influence: a manager may hold shares in competing businesses at once, because an index fund is designed to represent the market rather than pick a winner. Its role is less like a proprietor choosing a company's strategy and more like a large intermediary whose voting and engagement can matter across many companies.

The tradeoff for investors

Index funds can offer broad exposure without requiring each investor to select individual stocks. In exchange, investors have limited control over which companies enter the index, and their money generally follows its composition. They can choose a fund, but the asset manager handles the practical work of holding and voting the shares.

So a manager's reach can be broad even when its authority over any one company is limited: the same voting decisions may echo across many boardrooms because so much investment is pooled through its funds.