While Nasdaq is proud to be “relentlessly reimagining the markets of today,” the diversity requirement is not universally appreciated. Many companies want to choose the best candidates for board seats, with emphasis on work experience and other skills. They don’t want to be coerced into choosing board members on the basis of their skin color or sexual preferences.
We suspect many companies in the southeast quadrant are particularly non-receptive to Nasdaq’s woke requirements.
Another post-ESG adaptation
As we have noted at some length, the ESG movement has normalized the application of left-wing political ideologies and priorities within the board room. This often unwelcome fusion of politics with commerce has produced a number of reactions in protest and has also created business opportunities.
Elon Musk bought Twitter to rectify what he perceived as government-led censorship. Strive Asset Management was formed by Vivek Ramaswamy to combat ESG’s prevalence on the money management side. Last but not least, 76research was created to address the investment research angle.
The beauty of free markets is that customers have a choice. The formation of TXSE is a natural extension of the ongoing pattern of new businesses springing up to meet market demand for politically neutral service providers.
The demise of public markets
In the case of the exchanges, the burdens of ESG, DEI and other social mandates have only exacerbated an even broader problem. The United States has become an environment that is arguably hostile to public listings.
The number of publicly traded companies in the United States has fallen by approximately half since a peak in the late 1990s. There are multiple reasons for this, including the development of the private equity industry and various burdens imposed on public companies since the 2002 Sarbanes-Oxley Act went into effect.
Businesses also now have opportunities to access capital from private investors in ways that were not available decades ago. Technology has clearly played a role. Technological advancements, such as electronic document services, have facilitated the formation of complicated private financing arrangements that used to require a platform (public exchanges). Almost anything these days can be accomplished with a laptop and an iPhone.
There is a parallel here to changes in the media sector. The internet has enabled content producers to access their audiences directly without centralized networks acting as referee. A stock exchange, like a cable news network, is a middleman that extracts fees, imposes rules and is in some cases unnecessary.
Given the potentially declining relevance of public markets, especially for smaller, early stage companies, financial institutions like BlackRock have a vested interest in doing what they can to reverse the trend. Businesses built around publicly traded instruments have a natural interest in promoting the health and growth of public markets.
Is BlackRock changing its stripes?
BlackRock was an early champion of ESG investing but has since shown signs of pivoting away from it. Our perspective, based on direct experience, has always been that ESG was a commercial strategy for most financial institutions.
The politicization of the investment process was seen as an opportunity to charge higher fees. The executives at these companies may or may not align ideologically with the core beliefs of the ESG movement, but in our experience these individuals tend to be mercenaries, not missionaries.
To the extent Wall Street’s embrace of ESG, DEI and other acronyms isn’t currently helping them, it’s not all that surprising that companies like BlackRock are moving in the other direction and aligning themselves with figures like anti-woke warrior Ken Griffin. It was always about the money.
Citadel founder Ken Griffin has been a very outspoken critic of America’s woke trajectory. It is no surprise that he is involved in this venture. Griffin is one of the most successful hedge fund managers in history, with a reported net worth of $30 billion, and is highly active in Republican politics. We suspect he is playing a very large role here. Griffin was raised in Boca Raton and famously relocated Citadel from Chicago to Florida, a key “southeast quadrant” state.
