(Bloomberg) -- Imagine a world in which two asset managers call the shots, in which theirwealth exceeds current U.S. GDP and where almost every hedge fund,government and retiree is a customer.

It’s closer than you think.

BlackRock Inc. and Vanguard Group — already the world’slargest money managers — are less than a decade frommanaging a total of $20 trillion, according to Bloomberg Newscalculations.

Amassing that sum will likely upend the asset managementindustry, intensify their ownership of the largest U.S. companiesand test the twin pillars of market efficiency and corporategovernance.

None other than Vanguard founder Jack Bogle, widelyregarded as the father of the index fund, is raising the prospectthat too much money is in too few hands, with BlackRock, Vanguardand State Street Corp. together owning significantstakes in the biggest U.S. companies.

"That’s about 20 percent owned by this oligopoly of three,"Bogle said at a Nov. 28 appearance at the Council on ForeignRelations in New York. "It is too bad that there aren’t more peoplein the index-fund business.”

Vanguard is poised to parlay its $4.7 trillion of assets intomore than $10 trillion by 2023, while BlackRock may hit that marktwo years later, up from almost $6 trillion today, according toBloomberg News projections based on the companies’ most recentfive-year average annual growth rates in assets.

Those gains in part reflect a bull market in stocks that’sdriven assets into investment products and may not continue.

Investors from individuals to large institutions such as pensionand hedge funds have flocked to this duo, won over in part by theirlow-cost funds and breadth of offerings. The proliferation ofexchange-traded funds is also supercharging these firms and willlikely continue to do so.

Global ETF assets could explode to $25 trillion by 2025,according to estimates by Jim Ross, chairman of State Street’sglobal ETF business. That sum alone would mean trillions of dollarsmore for BlackRock and Vanguard, based on their current marketshare.

"Growth is not a goal, nor do we make projections about futuregrowth," Vanguard spokesman John Woerth said of the Bloombergcalculations.

While bigger may be better for the fund giants, passive fundsmay be blurring the inherent value of securities, implied in acompany’s earnings or cash flow.

The argument goes like this: The number of indexes nowoutstrips U.S. stocks, with the eruption of passive funds drivingdemand for securities within these benchmarks, rather than for thebroader universe of stocks and bonds.

That could inflate or depress the price of thesesecurities versus similar un-indexed assets, which maycreate bubbles and volatileprice movements.

Stocks with outsize exposure to indexed funds could trade moreon cross-asset flows and macro views, according to GoldmanSachs Group Inc. The bank found that, for the average stock in theS&P 500, 77 percent might trade on fundamentals, versusmore than 90 percent a decade ago.

That’s not BlackRock’s experience. “While index investing doesplay a role, the price discovery process is still dominated byactive stock selectors,” executives led by ViceChairman Barbara Novick wrote in a paper inOctober, citing the relatively low turnover and small size ofpassive accounts compared with active strategies.

Another concern is that without the prospect of being part of anindex, fewer small or mid-sized companies have an incentive to gopublic, according to Larry Tabb, founder of Tabb Group LLC, aNew York-based firm that analyzes the structure of financialmarkets.

That’s because their stock risks underperforming without theinclusion in an index or an ETF, he said. Benchmarks are governedby rules or a methodology for selection and some require that asecurity has a certain size or liquidity for inclusion.

We’re not near a tipping point yet. Roughly 37 percent ofassets in U.S.-domiciled equity funds are managed passively,up from 19 percent in 2009, according to SavitaSubramanian at Bank of America Corp.

By contrast, in Japan, nearly 70 percent of domestically focusedequity funds are passively managed, suggesting the U.S. can stomachmore indexing before market efficiency suffers.

There’s even further to go if you look globally: Only 15 percentof world equity markets — including funds, separatelymanaged accounts and holdings of individualsecurities — are passively managed, said Joe Brennan,global head of Vanguard’s equity index group, in an interview.

BlackRock and Vanguard’s dominance raises questions aboutcompetition and governance. The companies hold more than 5 percentof more than 4,400 stocks around the world, research fromthe University of Amsterdam shows.

That’s making regulators uneasy, with SEC Commissioner KaraStein asking in February: “Does ownership concentration affectthe willingness of companies to compete?”

Common ownership by institutional shareholders pushed upairfares by as much as 7 percent over 14 years starting in 2001because the shared holdings put less pressure on the airlines tocompete, according to a study led by Jose Azar, an assistantprofessor of economics at IESE Business School.

BlackRock and Vanguard are among the five largest shareholdersof the three biggest operators.“As BlackRock and Vanguard grow, andas money flows from active to large passive investors, theirpercentage share of every firm increases,” said Azar inan interview. “If they cross the 10 percent threshold, I think formany people that would make it clearer that the growth of largeasset managers could create serious concerns for competition inmany industries.”

BlackRock has called Azar’s research “vague andimplausible” while other academics have questionedhis methodology.One of those is Edward Rock. A lawprofessor at New York University, Rock says a variety of legalrules in fact discourage stakes above 10 percent and he favorscreating a safe harbor for holdings up to 15 percent to incentivizeshareholder engagement.

The firms are among the biggest holders of some of the world’slargest companies across a range of industries including Googleparent Alphabet Inc.and Facebook Inc. in technology,and lenders like Wells Fargo & Co.In the U.S., bothcompanies supported or didn’t oppose 96 percent of managementresolutions on board directors in the year ended June 30, accordingto their own reports.

“We’ve put more and more efforts behind it but we’ve always hada substantial effort,” said Vanguard’s Brennan. “We’re permanentlong-term holders and, given that, we have the strongest interestin the best outcomes.”

Their size could also help companies change for the good. Bothfirms were among the first to join the Investor StewardshipGroup, a group of institutional asset managers seeking to fosterbetter corporate governance, according to the organization’swebsite.

Vanguard has doubled its team dedicated to this overthe last two years and supported two climate-related shareholderresolutions for the first time.

BlackRock has more than 30 people engaging with itsportfolio companies. Active managers will be watching thesedevelopments closely. While many concede that stemming the passivetide is a challenge, they may see better days as central banksstart unwinding a decade of easy monetary policy that’s sappedvolatility.

Data show performance among active managers is improving. Some57 percent of large-cap stock pickers underperformed theS&P 500 in the year ended June 30, compared with 85 percent theyear before, data from S&P Dow Jones Indices show.

And if indexing distorts the market so much that it’s easier tobeat, more investors will flock to stock pickers, says RichardThaler, Nobel laureate, University of Chicago professor andprincipal at Fuller & Thaler Asset Management.

Right now, though, the duo’s advance appears unstoppable, andthe benefits they’ve brought with low-cost investments mayoutweigh some of the structural issues."Given that they’ve grown sobig because their fees are so small, these are the kinds ofmonopolies that don’t keep me up at night," said Thaler.

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