Regulation as a Mechanism of Concentration: Transformation of the Asset Management Industry in the USA (Q4 2025 – Q1 2026)
“The S&C Quarterly Investment Management Newsletter highlights key legal and regulatory developments relevant to the investment management industry…” — this standard introductory phrase of the largest Wall Street law firm is the key to understanding what is happening. The Sullivan & Cromwell quarterly bulletin for Q4 2025 – Q1 2026 records not technical amendments and not a “clarification of rules,” but a phase of accelerated administrative concentration of capital in the U.S. investment sector. Under the cover of compliance, fiduciary duties, and the alleged protection of investors, the market is shrinking in terms of the number of participants, while access to capital is becoming more expensive to levels unattainable for small and mid-sized firms. The market formally remains, but its economic permeability sharply declines.
First mechanism: A characteristic example is the SEC (Securities and Exchange Commission) proposals to change the definition of “small entities.” The asset threshold for investment companies is raised from $50 million to $10 billion, and for investment advisers — from $25 million to $1 billion. Formally this is presented as business support; in reality, the mid-sized segment is simply eliminated as a sustainable category. An adviser with $200–500 million AUM, until recently considered a viable player, falls outside simplified regulatory regimes while lacking the scale needed to distribute the full burden of fixed costs. It cannot operate like BlackRock (≈$9–10 trillion AUM), Vanguard (≈$8 trillion AUM), or State Street Global Advisors (≈$4 trillion AUM), for which the same requirements are a statistical error. Its economic model becomes non-viable. The result is not bankruptcy, but quiet acquisition, sale of the client base, or retreat under a platform’s wing. Competition is replaced by control.
Second mechanism: Amendments and clarifications to the Marketing Rule (FAQs on Rule 206(4)-1(b) and Rule 206(4)-1(c) of the Investment Advisers Act of 1940) do not introduce direct prohibitions. They create a gray zone where the only currency becomes a legal opinion. The requirement to model fees, disclose differences between actual and expected charges, and accompany every figure with disclaimers means a direct increase in fixed costs. For a large structure — such as BlackRock, JPMorgan Asset Management, or Fidelity — this is a budget line serviced by internal legal departments numbering in the hundreds. For a manager with $100 million AUM earning about a 1% fee (~$1 million per year), this means forced expenses of $200–300 thousand on lawyers, audit, and compliance, i.e., the extraction of 20–30% of operating profit. The regulator creates a product — legal uncertainty — and the legal industry (including Sullivan & Cromwell, Skadden, Latham & Watkins) sells this product.
Third mechanism: The INVEST Act (H.R. 3383), by raising the exemption threshold for private funds from $150 million to $175 million AUM and expanding exclusions, formally “simplifies” access. In practice, it legalizes more complex and capital-intensive structures — continuation funds, secondary transactions, multi-tier SPVs. These constructions are standard tools for players such as Blackstone, KKR, Apollo, and Ares Management, but for a mid-sized adviser they mean a sharp increase in requirements for capital, staff, and legal expertise. A small manager receives not freedom, but a higher technological and organizational barrier to entry. Access to “private markets” expands only for those already embedded in large financial networks.
Enforcement practice confirms the same logic. On November 17, the SEC charged six investment advisers with misstatements in Form ADV. All of them were exempt reporting advisers with assets under $150 million. This is not a fight against fraud as such, but a demonstration that the small participant becomes the first object of pressure: it does not have $2–3 million for a multi-year legal dispute, lacks resources to delay proceedings and negotiate. Such cases are economically cheap and highly effective warning signals that cleanse the market’s periphery without affecting major players.
The executive order on proxy advisers and the revision of the role of Institutional Shareholder Services (ISS) and Glass Lewis is not an ideological struggle, but a rationalization of governance. The concentration of influence in the hands of the “Big Three” — BlackRock, Vanguard, and State Street, controlling around 20–25% of votes in S&P 500 companies — reduces transaction costs of control over thousands of corporations. The circle of those admitted to strategic decision-making narrows. Formally, this appears as depoliticization and the restoration of order. In fact — as monopolization of the corporate voice and simplification of system manageability at the cost of its flexibility.
The sum of these “developments” is not reform, but a sieve. The U.S. financial market is not closing, but is becoming increasingly less passable. The cost of entry is measured no longer by an idea, not by expertise, and not by performance, but by the ability to continuously bear a growing burden of fixed compliance costs. Profit is increasingly extracted not from managing capital, but from controlling access to it and the rules of that access. Small and mid-sized players are not prohibited. They are made economically non-passable, inadmissible. This is not reform. This is capital concentration in motion. But to understand the irreversibility of this process, it is not enough to describe mechanisms. It requires viewing the asset management industry as a specific sphere of production, where the commodity is a security, a right to income, a financial instrument, where surplus value is extracted from the speed of circulation, the volume of circulation of fictitious capital, and, most importantly, surplus value is extracted from the right to appropriate a portion of redistributed income. From this point of view, if one abstracts from the rhetoric of investor protection and looks at the totality of measures, it becomes evident: this is not about external “regulation” of the market, but about the immanent development of forms of capital, driven by the necessity to restrain the anarchy of fictitious capital circulation. State norms and regulations in this case serve to strengthen the power of the largest financial groups. They do not restrain the movement of capital, but discipline it in the interests of those structures that already possess decisive economic and political weight. Under the cover of “regulation,” suppression, subordination, and displacement of capitals incapable of competing under a tightened financial regime takes place.
Measures presented as instruments for reducing risks and ensuring financial stability in practice function as a mechanism for concentration and centralization of capital. Crisis, as such, is not eliminated, but is used as a means of redistributing losses and property in favor of the largest financial groups. The ruin or displacement of so-called weak capitals becomes not a side effect of regulation, but a systemic method of centralizing financial monopoly. Risk is not eliminated, but transferred to weaker links in the system, which are deprived of the key to access the new regulatory threshold.
Firstly. The growth of universal digital and investment platforms reflects a shift in the internal structure of capital: the share of capital regularly spent on infrastructure, compliance, analytical systems, and legal control increases. The legislative increase in the minimum scale of “effective capital” — including raising thresholds for investment companies to levels of around $10 billion — settle a new economic barrier to entry into the industry.
Raising the thresholds for “small entities” to $10 billion for investment companies is not just a relaxation. It is a legislative establishment of a new minimum size of effective capital in the industry. For BlackRock ($9.1 trillion AUM) or Vanguard, the norms mean an increase in constant capital (not to be confused with productive constant capital (!); in this context: compliance infrastructure, tech infrastructure, and other similar elements), which is distributed across a gigantic mass of managed value without undermining the rate of profit. For a manager with $500 million AUM, the same costs represent a disproportionate increase in the internal structure of its capital (C/V) in the form of non-reducible fixed costs for supervision, reporting, and legal infrastructure, which makes its existence economically irrational under the average industry rate of profit. Its acquisition is not the result of “unfair rules,” but the result of the superiority of the aggregate value of large capital.
Secondly — the legal industry: large capital monopolizes access.
Each tightening and clarification of legal norms does not create value in itself, but settle the exclusive right to financial titles and property rights. For a management structure with assets of around $200 million AUM, annual legal and regulatory costs of $300 thousand turn into a critical burden — the price of admission to the “threshold” of legal circulation of fictitious capital. For large players, analogous expenses are lost in the mass of their aggregate capital. This means that the legal form becomes a barrier to capital circulation, which leads to systemic displacement of small and even already mid-sized players.
Firms such as Sullivan & Cromwell concentrate intellectual “means of production” for this sphere, extracting not accidental income, but a structurally entrenched monopolistic superprofit, made possible by the new, increased socially necessary level of costs for the renewed legal form of capital. This superprofit arises not as payment for a “service,” but as a form of redistribution of surplus value in a system where value increasingly exists not in the form of a material product, but in the form of a legally formalized financial title, granting and extending the right to future income.
Thirdly. Tightening custody rules is not an arbitrary regulatory decision, but a consistent method by large financial structures to take control over the movement of capital (securities and assets) and subordinate it to their centralized system of management, to subordinate capital circulation to the interests of their monopolies. The concentration of assets at JPMorgan ($30 trillion) or BNY Mellon ($46 trillion) is the centralization of the means of circulation following the concentration of capital. A small manager is forced to use their services not because of the “riskiness” of alternatives, but because only such scale corresponds to the new social productivity of capital in the sphere of its circulation, storage, and accounting. Their commissions ($15.9 billion in revenue at BNY Mellon in 2023) reflect a monopolistic price for this necessary infrastructure.
Fourthly — private equity: this is not an innovation in the production of a financial commodity; it is the investment of large capital in private (non-public) companies whose shares are not traded on the exchange, whose shares are not fragmented or dispersed, with the aim of obtaining high profit after, for example, 5–7 years. INVEST Act and continuation funds are also called “regulatory layering,” although this is nothing more than a redistribution of investment resources. The growth of investments in this sector to $85 billion in 2023 shows that capital is trying to find placement for itself in order to avoid devaluation due to temporary idle time. It may seem that giants like Blackstone act here as innovators of financial production, presenting themselves almost as pioneers of financial capital expansion, when in reality they are simply hunting for a real commodity that will bring real surplus value, plus additional surplus value at the moment of selling the company upon its public listing on the exchange. An old trick in new packaging, at a time when the stock exchange is losing its attractiveness.
Fifthly — centralization of control through the “Big Three” (25% of votes in the S&P 500) and directives on proxy advisers. Hyperconcentration creates an illusion of manageability; however, the accelerated centralization of control over corporate governance through the “Big Three” — BlackRock, Vanguard, and State Street, concentrating up to a quarter of votes in companies of the S&P 500 index — reflects the transition from a competitive market to the open domination of a narrow financial circle. The modern financial system increasingly depends on the decisions of a narrow group of managers and financial administrators. The concentration of capital and its tightened centralization in a few hands expresses an approaching crisis of unprecedented force. History shows that the centralization of capital and the subordination of economic life to the will of a few is not a means of saving the system, but a symptom of its exhaustion and a harbinger of shocks of exceptional depth.
In sum, what is occurring is not a “narrowing of the field,” but a jumping rapid strengthening of capital concentration (C/V) across the entire financial sphere. Small capital is expropriated not through competition, but because it cannot reach the new, socially necessary productivity of capital. Large capital receives temporary superprofit, and on this basis gains the ability to expand not only its economic power, but also its political power. The main economic contradiction lies in the fact that this “rationalization,” driven by the pursuit of private profit, generates a higher, concealed form of anarchy and systemic risk. The rules that again and again create circles of large financial capital are not a panacea for the problem. Many economists who call themselves professionals in the field of economics and capital movement claim that these threshold rules are intended to stabilize the economy. However, in reality it is precisely these thresholds that serve as a means of accelerating concentration, which, in dialectical logic, prepares the ground for a large-scale future crisis, when monopolistic management collides with the irreducible private nature of capital. For the regulator this means: the instruments developed to smooth the cycle are embedded into the mechanism of its future exacerbation. This is not a finale, but another metamorphosis of capital in search of the impossible — sustainable self-expansion under conditions of its immanent contradictions.
Therefore, the question on the agenda is not whether a crisis will occur, but the question of when the accumulated internal contradictions will pass from their hidden form into an open phase of destruction!
Author of the Article
Andrew Mercer
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Release Date: January 30, 2026
Publisher: The Eastern Post, London-Paris, United Kingdom-France, 2026.
