And they're no longer content to be the silent giants in the background, forcing company boards to balance the long-term view of passive fund managers with the short-termism of active managers.

The underperformance of the majority of Australian active managers over the past few years, coupled with the low cost of passive funds, has driven investors into products such as exchange-traded funds en masse, with total funds under management topping $23 billion this year.

As such, the three biggest providers of passive funds, BlackRock, Vanguard and State Street, have a growing presence on company registers.

According to Morningstar research, BlackRock holds 5 per cent or more of 43 companies on the ASX, including Bendigo and Adelaide Bank, CSL, Rio Tinto, Suncorp and Transurban.

State Street Global Advisors holds 5 per cent or more of nine companies, mostly REITs, while Vanguard sits on 32 companies including Tabcorp, Aristocrat Leisure and Mirvac.

Proxy advisory firm Ownership Matters co-founder Dean Paatsch said the three majors now in effect held the "balance of power" in corporate governance matters, including corporate transactions, mergers, schemes of arrangement and voting.

The trend is most prominent in the REIT sector, with passive funds making up to 20 per cent of total holdings.

'We're locked in'

BlackRock's head of Asia Pacific corporate governance and responsible investment, Pru Bennett, said while passive managers were perceived to have little reason to intervene in company decision making, the very fact that they could not sell their holdings meant they must develop productive relationships with company boards.

"We can find ourselves invested in companies we have concerns about from an ESG [environmental, social and governance] perspective," she said.

"An active manager can sell if they've got concerns. We can't sell, so we're locked in. We take a long-term view, and develop constructive relationships."

Ms Bennett, who is based in Hong Kong, travels to Australia each year to participate in proxy voting season. But she said there was regular engagement between her team and companies throughout the year.

"We actively engage, we vote all our proxies. We're not just voting but have a lot of engagement with companies," she said.

"We've got a fiduciary duty to our clients to enhance the value of the funds for our clients."

'Not the same type of fear'

But Mr Paatsch said boards approached active and passive shareholders differently.

"A management group looking over their shoulder and seeing that their shareholders may leg it in the event they may compromise their trust in them is different from looking over their shoulder and the only thing they have to worry about is not offending them [passive funds] in that they stop transacting," he said.

While investors had flocked to the lower-fee strategy, moves from active to passive funds were in effect compromising the "monitoring" role that funds that could vote with their feet created, Mr Paatsch said.

"It's not the same type of fear [for management] as someone not owning your stock," he said.

Boston-headquartered State Street Global Advisors has been vocal in its push for more influence in corporate governance, in a bid to combat the short-termism that has crept into company decision making, including performance-based goals.

"We call on boards to view passive investors as long-term partners and to communicate how the company's strategies, including their engagement with activists and board seat concessions, help create sustainable long-term value for all shareholders," head of corporate governance Rakhi Kumar wrote last month.

Vanguard takes a similar approach and promotes its engagement directly with companies above and beyond simply "for" or "against" voting.

'We do prioritise'

BlackRock, the world's biggest fund manager with $US5.1 trillion ($6.6 trillion) in assets under management, brings together its active and passive strategies to centralise its voting.

"We seek input from the active managers, because they have a much deeper knowledge of the company, and we find that extremely useful," Ms Bennett said.

Ms Bennett admitted the sheer scale of BlackRock's holdings made it impossible to be across every decision.

"We do prioritise. If you look at proxy voting as an example, I've made an estimate that around 70 per cent of proposals have been non-controversial, there have been 10 this year that got a bit of press out of 1200, so we do have processes that can ensure we are focused on where we can add value," she said.