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Speaker 1: M This is Mesters in Business with Very Renaults on

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Speaker 1: Bluebird Radio. This week. On the podcast, I have an

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Speaker 1: extra special guest. Frank Kinnery has had an incredible career

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Speaker 1: at the Vanguard Group. He is currently the global head

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Speaker 1: of Private Equities, but he's been there for twenty three

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Speaker 1: years working on things like portfolio construction and investment strategy.

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Speaker 1: He is incredibly insightful and thoughtful person. He looks at

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Speaker 1: the world from a very unique perspective relative to hey.

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Speaker 1: He sits at at one of the largest investment managers

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Speaker 1: in the world. Of Anger Group runs you know, over

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Speaker 1: seven trillion dollars for thirty million clients, and so that

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Speaker 1: makes him the perfect person to speak to about portfolios, equities, bonds,

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Speaker 1: private equity. I found this conversation to be absolutely fascinating

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Speaker 1: and I think you will also so with no further ado,

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Speaker 1: my interview with Vanguard Groups Fran Kinnery. This is Mesters

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Speaker 1: in Business with Very Results on Bluebird Radio. This week.

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Speaker 1: Once again I have an extra special guest. His name

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Speaker 1: is Fran Kinnery and he is Vanguard's global head of

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Speaker 1: Private Investments. Previously, he was principal in the Investment Strategy

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Speaker 1: Group and Global Head of Portfolio Construction at the seven

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Speaker 1: trillion dollar Vanguard Group, where he has worked for twenty

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Speaker 1: three years. Uh He is one of the people who

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Speaker 1: helped create the concept of Advisor's Alpha, which focuses on

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Speaker 1: advice and behavioral counseling. Last year, he was named to

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Speaker 1: head up Vanguard's private equity initiative. My firm, Rituals Wealth Management,

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Speaker 1: works with Vanguard. They're one of the biggest fund providers

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Speaker 1: that we operate with, and I have been privileged to

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Speaker 1: not only interview every CEO that Vanguard has ever had,

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Speaker 1: some multiple times, but a number of other people from

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Speaker 1: various departments research, stocks, bonds, etcetera, including Fran. This is

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Speaker 1: our our second conversation, and I just wanted to make

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Speaker 1: it clear and transparent that my firm has a relationship

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Speaker 1: with Vanguard. Fran Kinnery, Welcome back to Masters in Business.

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Speaker 1: Thanks Barry. It's great to be back on the show

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Speaker 1: with you. So you've been at Vanguard since, but clearly

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Speaker 1: this is a new role. Global head of Private Investments.

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Speaker 1: Tell us about how this new initiative came about and

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Speaker 1: you're rolling that. Yeah, I've been very lucky, very I've

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Speaker 1: been there as you said, twenty three years, and I've

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Speaker 1: had the great fortune to help Vanguard with three startups,

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Speaker 1: which you know, a firm that's been around since and

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Speaker 1: as large as we are too, who helped three startups

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Speaker 1: has just been great for me and I'm just very

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Speaker 1: humbled for that opportunity. I arrived in ninety seven. As

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Speaker 1: you mentioned that, my role was to help Vanguards start

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Speaker 1: its advice initiatives UM. My role was the head up

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Speaker 1: the investment and financial planning methodology for our advice UH launch.

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Speaker 1: Once that was up and running UM, in two thousand

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Speaker 1: and one, they asked me to help start up Vanguard's

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Speaker 1: investment Counseling and Research group and that was then rebranded

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Speaker 1: to the Investment Strategy Group. That team was really responsible

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Speaker 1: and my specific role asset class research, portfolio construction, financial planning,

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Speaker 1: wealth planning, investor behavior UM and then as you mentioned,

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Speaker 1: advisors out. So in that role I had covered the

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Speaker 1: asset classes and had written several research reports on private equity,

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Speaker 1: and so when the scene or leaders of Banguard decided

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Speaker 1: to go into private equity, I was just very lucky

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Speaker 1: and humbled that they selected me to lead the entry

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Speaker 1: to market. Quite interesting so let's talk a little bit

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Speaker 1: about the firm's history and philosophy. Uh. Jack Bogel was

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Speaker 1: notorious for wanting to keep things simple and inexpensive, so

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Speaker 1: much so he wasn't even thrilled with e t s,

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Speaker 1: which were potentially traded every day. How can you do

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Speaker 1: private equity in a way that's consistent with your founder's

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Speaker 1: core principles? Yeah, and and Barry, you and I know

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Speaker 1: each other, and and most people know Jack and I

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Speaker 1: had a pretty close relationship. You up until his passing

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Speaker 1: in two thousand and nineteen. I was very lucky to

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Speaker 1: stay very close to him. We would catch up for

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Speaker 1: lunch on a monthly basis. And I think, as you said,

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Speaker 1: he was mostly concerned with ets and what they trade, right,

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Speaker 1: because really an et F as an index fund, which

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Speaker 1: was certainly JACKO was a champion of indexing, but distributed

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Speaker 1: on an exchange rather than bought and sold directly at Vanguard,

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Speaker 1: And so certainly he would believe in all of the

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Speaker 1: attributes of ets, but he really was concerned would investors

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Speaker 1: use them properly? And so I would show him the data,

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Speaker 1: especially the Vanguard ets. These were building block portfolios that

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Speaker 1: were not traded. Certainly, there's five or six institutional products

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Speaker 1: that trade with high velocity, but they're mostly used by

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Speaker 1: institutional investors and more of a surrogate or replacement for

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Speaker 1: the overnight exposure. And so, but if you look at

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Speaker 1: the majority of ets, they have really good holding periods

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Speaker 1: and used correctly. We would say that private equity would

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Speaker 1: you know, had Jack been alive, would would embrace the offer.

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Speaker 1: A lot of people do not know that Vanguards started.

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Speaker 1: Jack started Vanguard as an actively managed shop, and so

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Speaker 1: what Jack really stood for was taking institutional, world class

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Speaker 1: investment offers down to main street investors and so private

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Speaker 1: equity and trying to democratize or bring private equity to

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Speaker 1: retail main street investors. I think he would be cheering

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Speaker 1: me on huh. Well, the one thing you don't have

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Speaker 1: to worry about with private equity is access trading. And

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Speaker 1: we'll talk about the liquidly premium or illiquidity premium in

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Speaker 1: a little bit, but let's talk about the concept of

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Speaker 1: Vanguard bringing private equity to retail investors. Tell us about

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Speaker 1: how this process is going. Yeah, so the process is

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Speaker 1: going very well, very We launched in February right before

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Speaker 1: you know, the COVID shutdowns in February. We decided to

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Speaker 1: stage this in very thoughtfully and very care fill a

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Speaker 1: meaning that we started. Vanguard has an O c I

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Speaker 1: O business, which is an institutional asset management business where

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Speaker 1: the endowment and foundation turns over the keys to us

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Speaker 1: to manage the portfolio. Private equity has been used in

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Speaker 1: some of the most sophisticated endowments and foundations and sovereign

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Speaker 1: wealth funds for thirty or forty years and has really

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Speaker 1: improved outcomes for those who have used private equity well.

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Speaker 1: So we started in our O c I O space

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Speaker 1: as I mentioned February. You may have seen the press

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Speaker 1: release or the audience may have seen the press release

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Speaker 1: in May. We then extended that to our ultra high

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Speaker 1: net worth retailed direct investors, and then later this year

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Speaker 1: we will be expanding that further to our personal advice clients,

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Speaker 1: which is our retail advisory business UM at the qualified

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Speaker 1: level right there are still regulatory gates here, so our

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Speaker 1: offer right now will be at to qualify the QP

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Speaker 1: level and the accredited level UM In in short, it's

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Speaker 1: having a certain asset and wealth threshold to make it

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Speaker 1: through that gap. So I'm kind of fascinated by how

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Speaker 1: Vanguard does this on a regular basis. Something starts out

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Speaker 1: essentially with an institutional audience and eventually works its way

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Speaker 1: down a series of tears until it's at mom and

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Speaker 1: pop mainstream investors. So you did this with just about

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Speaker 1: everything else that Vanguard offers, but let's stick with private equity.

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Speaker 1: It starts out institutional, it goes to outsourced chief investment officers,

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Speaker 1: accredited investors, advised investors. Will this eventually make its way

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Speaker 1: down to mom and pop main street investors? That's our goal. Um,

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Speaker 1: if you read the original press released, Kim Buckley, who

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Speaker 1: is our CEO, and I have worked on this closely together.

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Speaker 1: Our all is to really bring this to main street investors.

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Speaker 1: But I want to be clear under the right conditions vary,

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Speaker 1: and with what I mean by that is, um, we

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Speaker 1: don't want to put private equity out there for retail

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Speaker 1: investors to just buy this direct, meaning that an investment

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Speaker 1: can come in and and and put fifty percent of

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Speaker 1: their assets. We believe it has a really strong place

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Speaker 1: where we are designing the portfolio. You know, I was

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Speaker 1: the head of portfolio construction for seventeen years here at Vanguard.

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Speaker 1: So whether we are doing it through our own advice

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Speaker 1: or we are saying that what the allocation will be

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Speaker 1: as part of a multi asset class portfolio and our

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Speaker 1: O c I O business or in our personal advisor business.

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Speaker 1: But then there's also embedded advice things like target retirement funds,

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Speaker 1: where you know, we actually set the asset allocations, we

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Speaker 1: rebalance it. Uh, these are long duration investors and we

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Speaker 1: think that that would be a very very prudent way

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Speaker 1: to bring private equity to main street investor ters. So

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Speaker 1: we're working on that. UM, we're going to keep working

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Speaker 1: on that, and that is our long term vision. What

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Speaker 1: does the timeline look like for this, because I imagine

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Speaker 1: this is a slow, gradual, iterative process that involves a

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Speaker 1: series of let's try this, we'll find out what the

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Speaker 1: bugs are. All right, let's fix that. Now we have

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Speaker 1: this issue we have to resolve. What does this timeline

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Speaker 1: look like over the next decade. Yeah, the timelines are,

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Speaker 1: as you mentioned, very difficult, um and tricky, But I

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Speaker 1: think you characterize that correctly. By us starting in the

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Speaker 1: O C I O space, you're talking about very large

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Speaker 1: endowments where the peer group has used private equity. Then

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Speaker 1: we go to the ultra high net worth five million

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Speaker 1: plus UM direct or advised, We're gonna learn a lot,

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Speaker 1: We're gonna fix a lot of things, UM, And at

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Speaker 1: the end of the day, you know, we are going

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Speaker 1: to put all of our efforts to bring us to

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Speaker 1: main street investors because we have you think, target retirement

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Speaker 1: funds UM could really benefit from private equity when you

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Speaker 1: look at the returns and the diversification and the duration

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Speaker 1: of these investors, you know, thirty to seventy year horizons. UM.

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Speaker 1: So we're going to do it very thoughtfully, very carefully,

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Speaker 1: and so I really don't have a timeline for you

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Speaker 1: very You spent seventeen years doing portfolio construction at Vanguard.

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Speaker 1: Where does private equity fit into an investor's portfolio? Yeah,

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Speaker 1: the way we're thinking about it very after extensive, as

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Speaker 1: you mentioned, seventeen years of research. We would think that

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Speaker 1: the private equity allocation comes out of your public equity allocation.

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Speaker 1: And sometimes it's just easy to use the numbers of

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Speaker 1: the maps. Let's say a client is sixty forty equity

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Speaker 1: fixed income. We would think that the allocation comes out

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Speaker 1: of that sixty component. So let's just use a number.

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Speaker 1: Let's just say thirty percent. An investor decides to be

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Speaker 1: thirty percent private equity, So instead of being sixty forty

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Speaker 1: stock bond, you know, the thirty on sixty would be eighteen, right,

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Speaker 1: So now they would be eighteen percent private equity and

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Speaker 1: forty two percent public equity maintaining their in bonds. And

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Speaker 1: when you look at that, so you're not really increasing

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Speaker 1: the risk budget of the portfolio. Um. In fact, you

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Speaker 1: actually have diversification because all of these operating private companies

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Speaker 1: are not in the public universe, the correlations are not

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Speaker 1: at one, and you have return enhancements. So um, you know,

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Speaker 1: it is a really viable, prudent asset class to add

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Speaker 1: into a portfolio if it's funded out of the right way,

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Speaker 1: and we would be funding this from public equity. My

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Speaker 1: reaction was because I immediately thought you were talking thirty thirty.

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Speaker 1: But what I misinterpreted you you meant of the sixty,

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Speaker 1: not of the overall. That's right, so stead of you

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Speaker 1: would be forty two public equity, eighteen private equity and

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Speaker 1: then still bonds. All right, So let's talk a little

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Speaker 1: bit about the various private equity firms you work with.

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Speaker 1: There are thousands of them. How did you begin the

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Speaker 1: process of narrowing it down to a handful of them

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Speaker 1: and what was the vetting process like? Yeah, so while

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Speaker 1: many investors may know Vanguard is indexing, we are actually

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Speaker 1: one of the largest UM and actually have one of

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Speaker 1: the most successful active management practices UM in in the

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Speaker 1: asset management space. I mentioned that we started Vanguard as

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Speaker 1: an actively managed firm, and so we have, you know,

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Speaker 1: our entire history of doing manager oversight and selection and search,

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Speaker 1: and so when you know, we we decided to go

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Speaker 1: into the space, the next step was canvassing the managers

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Speaker 1: who are world class and so we you know, we

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Speaker 1: we went through a process of you know, we have

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Speaker 1: a database and we started with narrative down to let's

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Speaker 1: say forty plus firms. We then had deep meetings with

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Speaker 1: about ten of those firms, and then we actually but

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Speaker 1: you know, did site visits on site and and then

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Speaker 1: had them visit us. With five firms, we we narrowed

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Speaker 1: that down to two um where we really spent another

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Speaker 1: extra deep dive and then we selected Harbor Best UM

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Speaker 1: as the final winner of the partnership to move forward with.

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Speaker 1: And so we had a long history of understanding what

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Speaker 1: works in active management are actively managed funds without performed

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Speaker 1: consistently their peers and access about performed the indexes they

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Speaker 1: track on the public side, and harbor Best performance has

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Speaker 1: continually to outperform the median and average private equity manager.

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Speaker 1: So you know, we we can do the due diligence

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Speaker 1: for our investors and that's that's a lot uh to

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Speaker 1: put forward for the average investor. And so we are

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Speaker 1: very comfortable that we have found a great partner in

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Speaker 1: harbor Vest. So I want to talk a little more

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Speaker 1: about harbor Vest in a moment. But first I should

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Speaker 1: have said this, and I admitted this, but let me

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Speaker 1: clarify this. Uh. It's more than thirty of the seven

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Speaker 1: something trillion dollars in assets are are actively managed, and

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Speaker 1: Vanguard's ability to identify managers who can be successful is

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Speaker 1: a core competency. Am I getting that right? And please

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Speaker 1: correct me on on my numbers in terms of and

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Speaker 1: seven trillion. I know those numbers move around a lot. Yeah,

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Speaker 1: that's right, Verry, And and size has never been a

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Speaker 1: goal for Vanguard, So I know people will look at

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Speaker 1: the seven trillion or the look at the one point

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Speaker 1: seven trillion. We have an active and that's what we have. UM,

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Speaker 1: we believe that our size is you know, first off,

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Speaker 1: we have thirty million investors, so not Vanguard's assets. Vanguard

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Speaker 1: is the steward of thirty million investors who have trusted

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Speaker 1: us with their assets because we have served them well.

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Speaker 1: We believe that the investment population is a very very

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Speaker 1: smart population. There's an incredible competition in the mutual fund space.

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Speaker 1: There's actually, I believe three times the amount of mutual

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Speaker 1: funds that there are individual stocks. So there's a lot

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Speaker 1: of choice out there. And I think our size and

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Speaker 1: our growth has come from serving investors very well on

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Speaker 1: investment performance and on client service, and so our size

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Speaker 1: is really a tribute to you know, serving them well.

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Speaker 1: But as you mentioned, we are one of the largest

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Speaker 1: active managers. We continuously are in the seventy five top

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Speaker 1: death style relative to the active peer groups across all

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Speaker 1: the asset classes, you know, so taxable, fixed income, tax

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Speaker 1: exem fixed income, and equity. And then lastly, it's it's

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Speaker 1: one thing to beat your peer group, but we actually

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Speaker 1: out for form the indexes that we track, So I

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Speaker 1: know this movement to indexing has been strong, it's probably

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Speaker 1: been warranted. UM and indexing should outperform the average manager,

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Speaker 1: but that loses sight of that not all managers are average.

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Speaker 1: If you can find talent and you deliver that at

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Speaker 1: a reasonable cost. The evidence would show that Vanguard's active

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Speaker 1: funds together have added about fifty basis points on top

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Speaker 1: of the indexes that they tracked, and that's very meaningful

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Speaker 1: if you can calm down that over thirty to forty

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Speaker 1: years UM. And so our investors have been very well

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Speaker 1: served with our active offer. So let's talk about harbor Vest.

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Speaker 1: Your your partner on this private equity for investors at Vanguard.

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Speaker 1: How did you land on them? And tell us what

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Speaker 1: they bring that is unique compared to some of the

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Speaker 1: people that might have come in second or third. Yeah,

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Speaker 1: I think it all starts with UM. You know how

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Speaker 1: we think about what matters in active management UM, And

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Speaker 1: that all starts with the firm and the people. Those

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Speaker 1: are the two critical components the firm. We want to

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Speaker 1: make sure that they are putting clients first. UM. And

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Speaker 1: I know that's the common terminology put clients first. But

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Speaker 1: all of our interactions with harbor Vests where basically, if

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Speaker 1: we treat our clients well, if we give them high outcomes.

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Speaker 1: Growth follows as opposed to growth being the mission. The

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Speaker 1: mission should be serving clients. Well, you know, the Simon

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Speaker 1: spent a quote of you know, leaders eat last, and

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Speaker 1: so we think about that that our asset owners at Vanguard,

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Speaker 1: and it became very clear to us that the asset

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Speaker 1: owners of Harbor vests the clients come first. The owners

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Speaker 1: eat last. They take the spoils that are left over

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Speaker 1: after the clients do well. And we heard that time

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Speaker 1: and time again. It shows and how their partnership is structured,

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Speaker 1: meaning that economics and we see this time and time

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Speaker 1: again when economics are very widely spread out throughout the

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Speaker 1: organization that attracts the top talent um. And this is

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Speaker 1: a talent in people business. So when ownership is public,

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Speaker 1: or ownership is controlled by let's say a few founding founders, um,

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Speaker 1: you may not get necessarily the talent when the economics

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Speaker 1: and the rewards are spread out much more democratically. And

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Speaker 1: so we found a firm that has post to forty

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Speaker 1: years of experience where a structure and alignment of client

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Speaker 1: first and the people and the culture. And then lastly

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Speaker 1: we look at performance and the performance has just been

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Speaker 1: outstanding relative to the medium and average private equity offer

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Speaker 1: quite interesting. Let's talk a little bit about the vanguard

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Speaker 1: approach to private equity, starting with returns. What sort of

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Speaker 1: returns this vanguard looking for from pe relative to you know,

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Speaker 1: playing vanilla stocks and bots. Yeah, our our return expectation,

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Speaker 1: again is all formed off of our deep research verry UM.

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Speaker 1: So if you were to look at the median private

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Speaker 1: equity firm relative to you know, let's say the public

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Speaker 1: markets in all world public markets, you get about average returns, right,

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Speaker 1: You're gonna get you know, returns on top of the market.

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Speaker 1: So it's all about manager selection. Um. But here you're

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Speaker 1: familiar with the quartile rankings of public managers where they're

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Speaker 1: quite wide, but in private equity they're they're almost two

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Speaker 1: x that meaning that the top quartile um has returns

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Speaker 1: somewhere in the high twenties, and the fourth quartile is

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Speaker 1: negative fourteen UM and then in around you know, quartile

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Speaker 1: three and two, it's it's right around uh, you know,

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Speaker 1: the average. So this is all about manager selection, and

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Speaker 1: if you were able to you don't have to be perfect, right,

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Speaker 1: So if you were to just throw darts um and

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Speaker 1: and get a manager in each quartile. So in each

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Speaker 1: quart tile, so you would say you have no skill, uh,

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Speaker 1: my team and I have done this work, you would

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Speaker 1: end up with a return that's about a hundred and

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Speaker 1: seventy basis points over public markets with zero skill. That's

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Speaker 1: probably the illiquidity premium all asset classes like on the

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Speaker 1: run off the run treasuries or e t s that

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Speaker 1: are the same basket of ets the more you know

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Speaker 1: traded they are. So the one seven is probably first off,

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Speaker 1: you know, a liquidity premium one seven if you have

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Speaker 1: no manager skill would be something that you would not

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Speaker 1: want to leave on the table. But if you even

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Speaker 1: have moderate skill, where you would select instead of the five,

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Speaker 1: but you were able to select out of quart tile one,

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Speaker 1: in two and out of quartile three and four, the

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Speaker 1: returns quickly approach four hundred basis points over public markets.

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Speaker 1: And then if you have higher skill. Again this you know,

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Speaker 1: I'm not saying this is easy, but if you're able

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Speaker 1: to select of your managers in the top quartile in

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Speaker 1: quartile two, in quartile three, and then ten percent in

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Speaker 1: quartile four, the returns are about seven hundred basis points

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Speaker 1: over harbor vests. Experience has been in around that range

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Speaker 1: seven to eight hundred basis points over public markets. Vanguard

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Speaker 1: being conservative, we we believe the illiquidity premium will drop.

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Speaker 1: It is averaged in the past about three hundred basis points,

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Speaker 1: but let's say it's half of that at one five

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Speaker 1: and close to that. No skill and of harbor vests

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Speaker 1: can do even half of what they have done in

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Speaker 1: the past and and are just able to get slightly

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Speaker 1: better than manager selection um. Our forward looking estimate is

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Speaker 1: our investors will get between three and four hundred basis points,

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Speaker 1: are three to four percent more then public equity, and

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Speaker 1: that's going to be very significant in this low return world.

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Speaker 1: Happen to listen just recently to interview with Jack Brennan,

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Speaker 1: and you talked about the sixty forty portfolio, and I

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Speaker 1: share your concerns in Jack's concerns like where are returns

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Speaker 1: going to come from? And so to be able to

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Speaker 1: add three or four percent over public equity and funded

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Speaker 1: from public equity, we think that that is extremely prudent

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Speaker 1: for investors to do so, no doubt, four hundred basis

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Speaker 1: points gets a lot of people's attention, but there are

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Speaker 1: a lot of other reasons to consider private equity. Let's

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Speaker 1: let's talk about correlation. How closely are the returns in

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Speaker 1: private equity correlated to what we see in the public markets. Yeah,

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Speaker 1: so the correlations and you would have to get this

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Speaker 1: twofold right because the carly aans um since a lot

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Speaker 1: of private equity doesn't mark, meaning they're not marked to market.

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Speaker 1: The public markets marked to market every single day, and

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Speaker 1: so um, you were if you were to mark to

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Speaker 1: market the assets like if you have him and and

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Speaker 1: Harborfest does this and the industry does this, So you

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Speaker 1: can create an algorithm or a beta to try to

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Speaker 1: get what your daily marks would be. And even if

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Speaker 1: you were to do that, you would see correlations below

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Speaker 1: one somewhere. Let's say you know point eight point eight five. Um,

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Speaker 1: But again you and I Berry have talked a lot

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Speaker 1: about behavioral finance and advisors out but was built on

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Speaker 1: behavioral finance. The fact that these do not mark and

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Speaker 1: the prices are stale, and one could say that this

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Speaker 1: is a fantom benefit, and I'm not disagreeing, But if

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Speaker 1: you were only to price the total stock market or

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Speaker 1: the SMP five hundred every six months on the lag,

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Speaker 1: I believe investors would do better because a lot times,

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Speaker 1: we're reacting each and every day, um to what happened yesterday,

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Speaker 1: and does that really matter when our horizon is twenty

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Speaker 1: forty years? So we believe that this will provide diversification

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Speaker 1: and behavioral benefits because of how private equity works, right.

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Speaker 1: The advantage of homes are that you don't get a

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Speaker 1: price every day, and we're recording this the day after

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Speaker 1: it looked like the markets we're gonna be off two

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Speaker 1: and on a day when the markets have bounced back

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Speaker 1: one percent. That sort of volatility can easily distract investors

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Speaker 1: from the long term. So let's stick with private equity

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Speaker 1: and long term. Given how expensive public stocks are and

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Speaker 1: by many measures we are at the upper range of valuations,

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Speaker 1: private equity multiples have followed along and PE is uh

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Speaker 1: about as pricey as as stocks are. More or less,

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Speaker 1: it's it's a rough estimate. What are the concerns about

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Speaker 1: private equity multiples being as pricey as they are today? Yeah?

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Speaker 1: I think you're set up there. Barry is correct. Public

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Speaker 1: equities are probably in their you know, top, and private

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00:26:13,680 --> 00:26:18,199
Speaker 1: equity has followed um. But I also think that somewhat

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Speaker 1: misses the point we you know, we do not believe

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Speaker 1: markets have an expiration date. You would have said public

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Speaker 1: equity and private equity were overvalued. In they've found on

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Speaker 1: more than double UM. We have found that people that

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Speaker 1: market time markets UM. Really. A lot of people get

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Speaker 1: celebrated for calling the top and ninety nine, or they

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Speaker 1: get celebrated for calling the top and O seven. But

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Speaker 1: I'm looking at you know, I'm looking at charts of

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Speaker 1: my SMP five hundred at Vanguard and the private equities.

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Speaker 1: If you were the worst market time or ever and

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Speaker 1: you bought in March with two thousand UM, the harvardst

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Speaker 1: Fund for that vintage was up ten and a half percent,

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Speaker 1: and the US equity market over that time horizons up

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Speaker 1: three point six. So let's say like the ten to

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Speaker 1: fifteen year return off of that same thing. You know,

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Speaker 1: if you bought at the top of O sight UM.

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Speaker 1: You know, investors are I I think the connectrum here

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Speaker 1: is what do you do? You you take money off

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Speaker 1: the table and put it in sixth income instruments that

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Speaker 1: are yielding you know, somewhere below one and a half percent.

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Speaker 1: And so market timing has proven to be UM. You

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Speaker 1: probably more investors create more bear markets on their own

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Speaker 1: and opportunity costs by using simple metrics like valuations to

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Speaker 1: try to call the tops, and so we would advise

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Speaker 1: against that. The second thing I would say, Verry, we

430
00:27:38,440 --> 00:27:42,040
Speaker 1: also talked about this will be funded from public equity.

431
00:27:42,160 --> 00:27:46,080
Speaker 1: So if you are sixty forty, you're not really increasing

432
00:27:46,160 --> 00:27:49,320
Speaker 1: the value at risk or the risk budget of portfolio.

433
00:27:49,880 --> 00:27:52,960
Speaker 1: You would be moving that sixty down to forty two

434
00:27:53,280 --> 00:27:56,760
Speaker 1: and putting it in private equity at eighteen. And so

435
00:27:57,200 --> 00:27:59,919
Speaker 1: we would do that all day. Whether it's high valuation,

436
00:28:00,119 --> 00:28:03,520
Speaker 1: medium valuation, or low valuation, it makes a lot of

437
00:28:03,560 --> 00:28:07,320
Speaker 1: sense and you're locking in a longer term time horizon

438
00:28:07,400 --> 00:28:12,359
Speaker 1: for that portion of the portfolio. Have you considered other

439
00:28:12,440 --> 00:28:16,440
Speaker 1: types of private investments, things like venture capital or hedge

440
00:28:16,440 --> 00:28:20,680
Speaker 1: funds beyond private equity. Yeah, so maybe I could walk

441
00:28:20,680 --> 00:28:24,320
Speaker 1: through what is in this offer because it actually is

442
00:28:24,400 --> 00:28:28,760
Speaker 1: a very diversified offer that we have built for our investors.

443
00:28:29,400 --> 00:28:32,960
Speaker 1: Um you mentioned some of them. So this will have

444
00:28:33,200 --> 00:28:37,400
Speaker 1: diversification of stage, so it will have venture capital within

445
00:28:37,640 --> 00:28:42,080
Speaker 1: the harbor Best vanguard offering, the growth equity, and venture

446
00:28:42,120 --> 00:28:45,680
Speaker 1: capital growth equity as a later stage venture. Uh. This

447
00:28:45,800 --> 00:28:51,360
Speaker 1: portfolio will have somewhere around twenty to growth equity and

448
00:28:51,440 --> 00:28:54,920
Speaker 1: venture UM. It'll then the remainder of that will be

449
00:28:54,960 --> 00:28:58,800
Speaker 1: in buyouts, which are traditional leverage buyouts. Those are more

450
00:28:58,920 --> 00:29:03,040
Speaker 1: seasoned companies, more mature companies, So you do get a

451
00:29:03,120 --> 00:29:07,920
Speaker 1: lot of diversification of stage UM. You'll have geographic diversification

452
00:29:08,000 --> 00:29:10,600
Speaker 1: within here. So think of this as the total stock

453
00:29:10,720 --> 00:29:15,080
Speaker 1: market if you will, of private equity. It'll be globally diversified,

454
00:29:15,760 --> 00:29:18,480
Speaker 1: stage diversified like in the in the public markets we

455
00:29:18,560 --> 00:29:22,000
Speaker 1: use growth and value and large it's small. Uh, this

456
00:29:22,040 --> 00:29:25,960
Speaker 1: will be geographically diversified. It will have venture capital to

457
00:29:25,960 --> 00:29:31,320
Speaker 1: have buy out, it will have primary investments, secondary investments, UM,

458
00:29:31,360 --> 00:29:33,600
Speaker 1: and direct co invest So it is a real turn

459
00:29:33,720 --> 00:29:37,000
Speaker 1: key solution that at the end of the day it

460
00:29:37,040 --> 00:29:40,840
Speaker 1: will have you know, six to eight hundred operating companies.

461
00:29:41,560 --> 00:29:44,560
Speaker 1: And that would be hard for any investor that's let's

462
00:29:44,600 --> 00:29:49,400
Speaker 1: say under two billion dollars to try to replicate because

463
00:29:49,400 --> 00:29:53,719
Speaker 1: most of these managers are very specialized inside of hard vest, right,

464
00:29:53,760 --> 00:29:57,560
Speaker 1: so uh, what what makes a great venture capital manager

465
00:29:57,680 --> 00:30:01,440
Speaker 1: might be different than an Asian buy out manager. And

466
00:30:01,520 --> 00:30:05,440
Speaker 1: so this will have thirty to forty general partners inside

467
00:30:05,520 --> 00:30:11,360
Speaker 1: with seven operating companies, so very hard for any investor

468
00:30:11,440 --> 00:30:14,240
Speaker 1: under let's say two billion dollars to kind of replicate

469
00:30:14,320 --> 00:30:18,520
Speaker 1: this offer. So it is very well diversified. So that

470
00:30:18,720 --> 00:30:22,920
Speaker 1: number of companies under a variety of managers, under a

471
00:30:23,040 --> 00:30:26,600
Speaker 1: variety of sectors. It leads me to ask the question,

472
00:30:27,320 --> 00:30:30,440
Speaker 1: are you going to run into any capacity constraints if

473
00:30:30,480 --> 00:30:34,960
Speaker 1: you ramp this up? How big can this scale at Vanguard?

474
00:30:34,960 --> 00:30:38,800
Speaker 1: Can this be a trillion dollar line of business? Yeah?

475
00:30:38,800 --> 00:30:42,480
Speaker 1: I would say maybe address that two ways, one um

476
00:30:42,520 --> 00:30:45,120
Speaker 1: and maybe we'll get to the fees of private equity later.

477
00:30:45,160 --> 00:30:48,080
Speaker 1: But let me address that a little bit here. Harbor

478
00:30:48,160 --> 00:30:52,520
Speaker 1: Vests and the general partners that they work with are

479
00:30:52,680 --> 00:30:57,880
Speaker 1: mostly compensated on performance based fees UM. It's known as

480
00:30:57,960 --> 00:31:01,960
Speaker 1: carry in the private equity space, and so the economics

481
00:31:02,000 --> 00:31:06,400
Speaker 1: to them really start to accrue once they hit a

482
00:31:06,480 --> 00:31:09,880
Speaker 1: hurdle rate above eight per cent. The management fee that

483
00:31:09,920 --> 00:31:13,080
Speaker 1: they get pretty much just covers the operating costs of

484
00:31:13,120 --> 00:31:15,920
Speaker 1: what they do. So they do not want to give

485
00:31:15,960 --> 00:31:19,160
Speaker 1: away capacity that they do not believe they can source

486
00:31:19,560 --> 00:31:22,680
Speaker 1: without returns that are double digits and above double digits,

487
00:31:22,680 --> 00:31:25,160
Speaker 1: because that would not be good for their business. So

488
00:31:25,200 --> 00:31:29,000
Speaker 1: they watch capacity both at the general partner level and

489
00:31:29,080 --> 00:31:32,680
Speaker 1: at harbor best level. Uh. They they it's probably one

490
00:31:32,720 --> 00:31:35,160
Speaker 1: of the things they are you know, obviously since the

491
00:31:35,160 --> 00:31:37,320
Speaker 1: economics are tied to that, they're going to watch that

492
00:31:37,480 --> 00:31:40,680
Speaker 1: very closely. Um. So we have a runway with them,

493
00:31:40,720 --> 00:31:43,480
Speaker 1: and we think it's a you know, it's an intermediate runway.

494
00:31:44,160 --> 00:31:46,360
Speaker 1: But if we do well here and we are able

495
00:31:46,400 --> 00:31:49,800
Speaker 1: to democratize the sasset class um, I would say very

496
00:31:49,880 --> 00:31:55,680
Speaker 1: much like we started with one active manager, the Wellington's group, uh,

497
00:31:55,720 --> 00:31:58,880
Speaker 1: and now we have close to thirty active managers. So

498
00:31:58,920 --> 00:32:02,240
Speaker 1: we are continuing and will continue to think about do

499
00:32:02,280 --> 00:32:05,880
Speaker 1: we need manager too and then manager three? And we

500
00:32:05,920 --> 00:32:10,640
Speaker 1: feel we are very well equipped to source a second

501
00:32:10,720 --> 00:32:15,440
Speaker 1: and third manager when that time comes. But together harbor

502
00:32:15,480 --> 00:32:18,840
Speaker 1: Vest and Vanantgard are looking at capacity very closely. So

503
00:32:18,920 --> 00:32:22,560
Speaker 1: let's put some flesh on on those numbers, on those fees.

504
00:32:23,200 --> 00:32:26,560
Speaker 1: I'm assuming when you talk about, you know, just the

505
00:32:27,040 --> 00:32:31,560
Speaker 1: cost of of of administrative expenses on a fund, that's

506
00:32:31,600 --> 00:32:34,920
Speaker 1: gonna be some and private equity obviously much more expensive

507
00:32:35,440 --> 00:32:38,400
Speaker 1: than managing an e T F for or an index.

508
00:32:38,440 --> 00:32:41,240
Speaker 1: I'm gonna guess that's going to be about fifty basis points.

509
00:32:41,640 --> 00:32:44,880
Speaker 1: And then that eight percent uh, that's a pretty good

510
00:32:44,880 --> 00:32:50,720
Speaker 1: long term SMP five return number. Their fees are their

511
00:32:50,760 --> 00:32:53,520
Speaker 1: out performance over that eight percent? Am I getting that

512
00:32:53,600 --> 00:32:56,600
Speaker 1: more or less right? That's right. The carry does not

513
00:32:56,880 --> 00:33:00,600
Speaker 1: start to kick in until a return hurdle the percent,

514
00:33:01,360 --> 00:33:03,880
Speaker 1: And so that's why most private equity managers are shooting

515
00:33:03,960 --> 00:33:10,000
Speaker 1: for you know, fifteen to twenty gross returns and and

516
00:33:10,000 --> 00:33:12,160
Speaker 1: and the best ones have been able to do that.

517
00:33:12,640 --> 00:33:15,560
Speaker 1: And that's where the economics really lie. And so I

518
00:33:15,560 --> 00:33:18,160
Speaker 1: think it gets back to aligned interests. Right when most

519
00:33:18,200 --> 00:33:22,600
Speaker 1: of the feast sack is performance based and above some hurdle,

520
00:33:23,320 --> 00:33:27,120
Speaker 1: everyone is operating under the same incentives and so um

521
00:33:27,240 --> 00:33:29,680
Speaker 1: you know that that that makes private equity a very

522
00:33:29,720 --> 00:33:35,440
Speaker 1: aligned UH investment and asset class to client outcomes quite interesting.

523
00:33:35,760 --> 00:33:39,960
Speaker 1: You mentioned you want to be diversified globally in terms

524
00:33:40,000 --> 00:33:43,520
Speaker 1: of the investment. I'm assuming that that means everywhere around

525
00:33:43,560 --> 00:33:46,880
Speaker 1: the world. What about the investors? Is this the same?

526
00:33:47,720 --> 00:33:49,520
Speaker 1: Is this US only or is this going to be

527
00:33:49,600 --> 00:33:54,400
Speaker 1: open to global investors? So today we're starting in the US,

528
00:33:54,600 --> 00:33:59,280
Speaker 1: just like we're staging this out by clients segment and

529
00:33:59,480 --> 00:34:04,960
Speaker 1: working um you know where we are mostly working with

530
00:34:05,160 --> 00:34:10,080
Speaker 1: qualified investors and the regulation that's here. Eventually we will

531
00:34:10,320 --> 00:34:12,560
Speaker 1: you know, try to move this down market to main

532
00:34:12,640 --> 00:34:16,600
Speaker 1: street US investors, and eventually we are looking at how

533
00:34:16,640 --> 00:34:19,880
Speaker 1: we could utilize this in some of our um non

534
00:34:20,080 --> 00:34:23,359
Speaker 1: US offerings, whether it be single fund solutions or whether

535
00:34:23,400 --> 00:34:26,080
Speaker 1: it be in our advice outside of the US. But

536
00:34:26,400 --> 00:34:29,800
Speaker 1: again no timelines on that, but that is again probably

537
00:34:29,800 --> 00:34:32,960
Speaker 1: where we will be at some point in the future. Interesting,

538
00:34:33,080 --> 00:34:36,560
Speaker 1: and you had mentioned you were working with advisors on this.

539
00:34:37,280 --> 00:34:39,040
Speaker 1: What do you think the process is going to be

540
00:34:39,080 --> 00:34:43,560
Speaker 1: like before this reaches retail? Is this going to be

541
00:34:44,360 --> 00:34:46,399
Speaker 1: you know, a long process or do you think you're

542
00:34:46,400 --> 00:34:50,680
Speaker 1: going to get there sooner rather than than later. Um,

543
00:34:50,719 --> 00:34:52,759
Speaker 1: I mean our hope is to get there sooner rather

544
00:34:52,800 --> 00:34:55,840
Speaker 1: than later. You know, we talked earlier about a sixty

545
00:34:55,960 --> 00:34:58,920
Speaker 1: forty portfolio. I mean, I think the main street investor,

546
00:34:59,120 --> 00:35:02,719
Speaker 1: let's just take a school teacher and nurse, you know,

547
00:35:03,760 --> 00:35:08,120
Speaker 1: who is saving diligently for retirement. UM. I don't know

548
00:35:08,120 --> 00:35:09,879
Speaker 1: where the returns are going to come from. I mean,

549
00:35:10,280 --> 00:35:14,759
Speaker 1: most of the fixed income investments are below inflation, and

550
00:35:14,840 --> 00:35:18,360
Speaker 1: so you know, the sooner we can get private equity

551
00:35:18,520 --> 00:35:21,600
Speaker 1: into main street investors, and where we are the allocator

552
00:35:21,680 --> 00:35:23,879
Speaker 1: of it, and we do it in a thoughtful way. Um.

553
00:35:23,920 --> 00:35:27,279
Speaker 1: I think it will have long term compounding advantages for

554
00:35:27,400 --> 00:35:31,200
Speaker 1: these investors who needed the most, who are saving diligently,

555
00:35:31,360 --> 00:35:34,960
Speaker 1: doing the right thing, saving with a long duration and

556
00:35:35,040 --> 00:35:38,600
Speaker 1: just hoping to get real returns in retirement. There's no

557
00:35:38,680 --> 00:35:41,640
Speaker 1: real reason to save. Um. You know, saving is a

558
00:35:41,719 --> 00:35:45,439
Speaker 1: deferment of future consumption, and if you're saving and getting

559
00:35:45,480 --> 00:35:48,719
Speaker 1: a negative real return that that really isn't a trade

560
00:35:48,760 --> 00:35:51,640
Speaker 1: off that most people you know would welcome. And so

561
00:35:51,719 --> 00:35:54,520
Speaker 1: we're trying to make sure that we can generate real

562
00:35:54,640 --> 00:35:58,440
Speaker 1: returns for investors saving for retirement. So all of our

563
00:35:58,560 --> 00:36:00,879
Speaker 1: energies and efforts are on the send. I just don't

564
00:36:00,880 --> 00:36:04,440
Speaker 1: have a timeline, so let's stick with retirement. Is this

565
00:36:04,600 --> 00:36:09,560
Speaker 1: better suited for qualified tax DEFERD accounts for one case?

566
00:36:09,640 --> 00:36:15,600
Speaker 1: And on IRA's versus traditional portfolios? And how might this

567
00:36:15,800 --> 00:36:19,879
Speaker 1: fit into a target date fund? Yeah, I would say

568
00:36:19,920 --> 00:36:22,319
Speaker 1: both set of investors use it well. I know you

569
00:36:22,360 --> 00:36:24,560
Speaker 1: work with high net worth families, Barry, and I do

570
00:36:24,640 --> 00:36:26,680
Speaker 1: it well. I work with a lot of family offices

571
00:36:26,719 --> 00:36:29,880
Speaker 1: and high net worth taxable clients, and a lot of

572
00:36:29,960 --> 00:36:33,319
Speaker 1: clients think about after tax returns. UM. Not to get

573
00:36:33,360 --> 00:36:38,120
Speaker 1: too technical, but this is a good portfolio for tax

574
00:36:38,160 --> 00:36:41,719
Speaker 1: and wealth and estate planning. Uh. It follows a J curb,

575
00:36:41,800 --> 00:36:44,799
Speaker 1: which means it has some early year losses which are

576
00:36:44,920 --> 00:36:47,680
Speaker 1: valuable to high net worth families. And it's a great

577
00:36:47,760 --> 00:36:51,000
Speaker 1: estate planning because you can actually get assets out of

578
00:36:51,040 --> 00:36:54,759
Speaker 1: your estate at let's say X, and then fifteen years

579
00:36:54,800 --> 00:36:56,880
Speaker 1: later they come out hopefully at two to two and

580
00:36:56,880 --> 00:36:59,040
Speaker 1: a half times X. So we do see there is

581
00:36:59,080 --> 00:37:04,440
Speaker 1: a very very popular private equity strategy in you know,

582
00:37:04,520 --> 00:37:08,080
Speaker 1: some of our high it worth trusts and estate planning clients.

583
00:37:08,080 --> 00:37:10,080
Speaker 1: On the other end of the spectrum is just main

584
00:37:10,120 --> 00:37:13,520
Speaker 1: street investors who are saving in a target retirement funds

585
00:37:14,080 --> 00:37:16,840
Speaker 1: and then for target date funds which would be in

586
00:37:16,960 --> 00:37:21,440
Speaker 1: a defined contribution plan um where Vanguard would you know,

587
00:37:21,560 --> 00:37:26,080
Speaker 1: obviously do the multi asset class portfolio construction and the

588
00:37:26,120 --> 00:37:32,120
Speaker 1: allocation and the rebalancing um. And these are long duration investors.

589
00:37:32,760 --> 00:37:36,359
Speaker 1: Typically they have a thirty year investment horizon and then

590
00:37:36,400 --> 00:37:39,799
Speaker 1: maybe a fifty to sixty year life horizon. And the

591
00:37:39,800 --> 00:37:42,399
Speaker 1: other great thing about the rfs is we know exactly

592
00:37:42,719 --> 00:37:45,239
Speaker 1: when they're going to retire and when they're going to

593
00:37:45,400 --> 00:37:50,040
Speaker 1: shift from accumulation to decumulation and retirement income. So we

594
00:37:50,080 --> 00:37:54,239
Speaker 1: could have a private equity glide path um that that

595
00:37:54,280 --> 00:37:58,000
Speaker 1: we mentioned earlier. Let's say you have fift to private

596
00:37:58,040 --> 00:38:02,520
Speaker 1: equity when you're third of years away to retirement, and

597
00:38:02,560 --> 00:38:05,600
Speaker 1: we just stopped investing in that as you approach five

598
00:38:05,680 --> 00:38:09,040
Speaker 1: to ten years prior to retirements. So when you start

599
00:38:09,160 --> 00:38:13,120
Speaker 1: retirement income, private equity lands at zero O. So we

600
00:38:13,680 --> 00:38:17,400
Speaker 1: we see it as a perfect place um for both

601
00:38:17,600 --> 00:38:21,080
Speaker 1: ends of the spectrum and really for all investors who

602
00:38:21,120 --> 00:38:25,120
Speaker 1: are looking to have real returns. Quite interesting, So let's

603
00:38:25,160 --> 00:38:29,839
Speaker 1: talk a little bit about investor appetite. How strong is

604
00:38:30,360 --> 00:38:36,439
Speaker 1: the demand for this sort of investment from the public today. Yeah,

605
00:38:36,440 --> 00:38:39,000
Speaker 1: I have the investment demand for private equity both on

606
00:38:39,000 --> 00:38:42,480
Speaker 1: our launch, but private equity in general has been setting records.

607
00:38:42,920 --> 00:38:46,360
Speaker 1: You probably read in the in the press. Fundraising in

608
00:38:46,560 --> 00:38:49,359
Speaker 1: nineteen twenty and and so far in twenty one has

609
00:38:49,400 --> 00:38:52,920
Speaker 1: just been off the charts. One could argue at cyclical,

610
00:38:53,239 --> 00:38:55,760
Speaker 1: or others could argue at secular. I'm on the secular

611
00:38:55,800 --> 00:38:58,480
Speaker 1: side of this um. You know, we do see that

612
00:38:58,600 --> 00:39:03,880
Speaker 1: some investors are lead being the edge of you know, progressiveness,

613
00:39:04,000 --> 00:39:07,319
Speaker 1: and so you see the top endowments and foundations and

614
00:39:07,440 --> 00:39:10,320
Speaker 1: sovereign wealth funds have been in private equity since the

615
00:39:10,440 --> 00:39:14,600
Speaker 1: early ninety nineties. They've increased their allocations. I think this

616
00:39:14,760 --> 00:39:17,759
Speaker 1: is the rest of the market catching up Verry, so

617
00:39:17,880 --> 00:39:21,120
Speaker 1: the demand is quite strong. I I do not see

618
00:39:21,120 --> 00:39:24,040
Speaker 1: it as cyclical. We've been through three of the largest

619
00:39:24,080 --> 00:39:27,080
Speaker 1: bear markets in the market's history, when you look at

620
00:39:27,120 --> 00:39:29,719
Speaker 1: the Internet tech tech bubble, and then the a O

621
00:39:29,920 --> 00:39:33,440
Speaker 1: nine global financial crisis, and then the quick flip in COVID,

622
00:39:33,920 --> 00:39:37,440
Speaker 1: and yet you continue to see private equity grow. Uh.

623
00:39:37,560 --> 00:39:40,040
Speaker 1: So I believe this is structural, and I believe it's

624
00:39:40,080 --> 00:39:43,840
Speaker 1: because of the investment case, both on diversification and what

625
00:39:43,920 --> 00:39:47,279
Speaker 1: it can do to improve outcomes on performance. So I

626
00:39:47,320 --> 00:39:49,719
Speaker 1: do not see this as being cyclical. I would be

627
00:39:49,760 --> 00:39:52,400
Speaker 1: shocked if five and ten and fifteen years that private

628
00:39:52,400 --> 00:39:56,279
Speaker 1: equity is not larger than it is today. Interesting. So

629
00:39:56,320 --> 00:39:58,799
Speaker 1: there's a quote, and I think it's yours that that

630
00:39:58,920 --> 00:40:02,280
Speaker 1: I want to share. Quote. Restrictions on who can invest

631
00:40:02,320 --> 00:40:06,680
Speaker 1: in private equity should be based on investment horizon and

632
00:40:06,760 --> 00:40:12,480
Speaker 1: not income or wealth unquote. Discuss Yeah, So I think

633
00:40:12,520 --> 00:40:15,919
Speaker 1: the current regulatory has a lot of merit right now.

634
00:40:16,000 --> 00:40:19,280
Speaker 1: The gates to get into private equity are wealth and income,

635
00:40:19,719 --> 00:40:21,359
Speaker 1: and I think it does have merit, And I think

636
00:40:21,400 --> 00:40:24,399
Speaker 1: the regulators really do care about investors, and they care

637
00:40:24,480 --> 00:40:28,040
Speaker 1: deeply about investors, and they would argue that these investors

638
00:40:28,040 --> 00:40:31,360
Speaker 1: could afford h to lose assets when they have this

639
00:40:31,480 --> 00:40:34,399
Speaker 1: type of wealth and income threshold. But I would argue,

640
00:40:34,520 --> 00:40:36,560
Speaker 1: let's let's just say you take someone who is a

641
00:40:36,640 --> 00:40:38,960
Speaker 1: high spend or someone who's spending eight or nine percent

642
00:40:39,000 --> 00:40:41,879
Speaker 1: of their portfolio, whether it's just a high net worth

643
00:40:41,920 --> 00:40:45,000
Speaker 1: client or an entertainer or a sports figure, even if

644
00:40:45,000 --> 00:40:47,200
Speaker 1: they have ten million dollars and they're spending a lot

645
00:40:47,239 --> 00:40:49,920
Speaker 1: of money, I would not recommend private equity to that.

646
00:40:50,080 --> 00:40:53,439
Speaker 1: I mean, it is an ill liquid asset UM and

647
00:40:53,440 --> 00:40:57,040
Speaker 1: and so I really think it's it's much more appropriate

648
00:40:57,120 --> 00:41:00,160
Speaker 1: to think about what is the horizon of the investor or?

649
00:41:01,040 --> 00:41:06,160
Speaker 1: Um is the an asset being managed by a fiduciary.

650
00:41:06,280 --> 00:41:08,680
Speaker 1: Uh So you know what we talked about target retirement

651
00:41:08,719 --> 00:41:12,000
Speaker 1: funds or our advice at Vanguard, we are managing those

652
00:41:12,040 --> 00:41:16,000
Speaker 1: assets and we would rebalance those assets. So I think

653
00:41:16,040 --> 00:41:19,880
Speaker 1: when it is professionally managed and it meets the time

654
00:41:19,920 --> 00:41:25,600
Speaker 1: horizon and the investor is in accumulation or slight accumulation,

655
00:41:26,080 --> 00:41:29,000
Speaker 1: that's where I would put private equity. But if someone

656
00:41:29,040 --> 00:41:32,120
Speaker 1: walked in and they had, you know, fifteen million dollars

657
00:41:32,200 --> 00:41:34,319
Speaker 1: and making a million dollars in a year, but they

658
00:41:34,320 --> 00:41:36,879
Speaker 1: were spending two or three and you and I bury

659
00:41:36,920 --> 00:41:40,000
Speaker 1: no clients just like that, uh what they would qualify,

660
00:41:40,120 --> 00:41:42,120
Speaker 1: But I would not put private equity in their portfolio.

661
00:41:42,600 --> 00:41:47,000
Speaker 1: So I understand why wealth and income really around those

662
00:41:47,040 --> 00:41:49,200
Speaker 1: clients could afford to lose it. But if you take

663
00:41:49,239 --> 00:41:52,799
Speaker 1: a step back from that, um, I think time horizon,

664
00:41:53,800 --> 00:41:58,319
Speaker 1: whether you're the accumulation or decumulation, and whether it's professionally

665
00:41:58,360 --> 00:42:01,920
Speaker 1: managed by a multi asset class professional, would be the

666
00:42:02,040 --> 00:42:06,320
Speaker 1: real gates of prudence as opposed to just wealth and income.

667
00:42:06,880 --> 00:42:10,400
Speaker 1: That makes a lot of sense. The illequidly premium only

668
00:42:10,440 --> 00:42:13,920
Speaker 1: works if you don't need to tap into that capital

669
00:42:14,400 --> 00:42:18,239
Speaker 1: for that entire lock up period. Um. But I'm sure

670
00:42:18,280 --> 00:42:23,920
Speaker 1: there are pretty substantial penalties for getting out of a

671
00:42:23,960 --> 00:42:27,520
Speaker 1: private equity investment early. How do you manage that if

672
00:42:27,840 --> 00:42:32,800
Speaker 1: someone's circumstances change and they need the cash sooner versus

673
00:42:33,080 --> 00:42:37,200
Speaker 1: their original plans. Yeah, I think there there is a

674
00:42:37,320 --> 00:42:41,040
Speaker 1: secondary market barry that is growing and getting closer and

675
00:42:41,120 --> 00:42:44,480
Speaker 1: closer to fair market value. UM. I would say it's

676
00:42:44,520 --> 00:42:47,719
Speaker 1: like any other asset class we've seen, including ets. If

677
00:42:47,719 --> 00:42:51,319
Speaker 1: you're trying to sell out because the market is under

678
00:42:51,360 --> 00:42:55,440
Speaker 1: pressure or contagion, UH, you should expect a large discount

679
00:42:55,480 --> 00:42:57,640
Speaker 1: like we saw in O eight oh nine and during

680
00:42:57,640 --> 00:43:01,479
Speaker 1: in COVID. Even in high quality fixed income, you see

681
00:43:01,480 --> 00:43:06,319
Speaker 1: discounts under stress. However, if if your circumstances changed and

682
00:43:06,360 --> 00:43:08,000
Speaker 1: you just want to get out of private equity and

683
00:43:08,080 --> 00:43:11,320
Speaker 1: it's not in concasion, and you want to do it

684
00:43:11,360 --> 00:43:14,880
Speaker 1: at you know, over time, like in a quarterly or

685
00:43:14,960 --> 00:43:19,800
Speaker 1: semiannual a lot in the secondary market as accommodate windows

686
00:43:19,840 --> 00:43:22,600
Speaker 1: where you can sell your private equity back, and the

687
00:43:22,680 --> 00:43:26,440
Speaker 1: discounts are not that extreme, uh, if you're doing it

688
00:43:26,600 --> 00:43:32,040
Speaker 1: in the qualified times that the secondary market allows liquidity events.

689
00:43:32,080 --> 00:43:33,759
Speaker 1: So I would say it's you know, it's twofold. If

690
00:43:33,760 --> 00:43:36,800
Speaker 1: you're selling because of market concasion or in market stress,

691
00:43:37,280 --> 00:43:39,520
Speaker 1: expect a large discount like you would in most of

692
00:43:39,640 --> 00:43:42,800
Speaker 1: their asset classes. If you're doing it because of non

693
00:43:42,840 --> 00:43:45,640
Speaker 1: market related events and you do it in the windows

694
00:43:45,640 --> 00:43:48,200
Speaker 1: that are allowed, H, the discount will still be there.

695
00:43:48,239 --> 00:43:50,960
Speaker 1: I want to be very clear, UM, no different than

696
00:43:51,000 --> 00:43:54,280
Speaker 1: trying to sell me disciole bonds or corporate bonds. UM.

697
00:43:54,360 --> 00:43:57,360
Speaker 1: But but it would not be that detrimental. But it

698
00:43:57,520 --> 00:43:59,759
Speaker 1: is clear. We want investors to understand that they are

699
00:44:00,040 --> 00:44:03,120
Speaker 1: ring a long term investment and hopefully there's some circumstances

700
00:44:03,160 --> 00:44:06,080
Speaker 1: do not change that would warrant them selling it. So

701
00:44:06,200 --> 00:44:09,800
Speaker 1: that's one of the unique challenges of private equity versus

702
00:44:09,920 --> 00:44:12,359
Speaker 1: you know, playing vanilla stocks and bonds. What are other

703
00:44:12,520 --> 00:44:17,399
Speaker 1: challenges that are unique to this asset class. I think

704
00:44:17,400 --> 00:44:22,920
Speaker 1: the other challenges are manager selection and manager access. Most

705
00:44:22,960 --> 00:44:29,360
Speaker 1: of the top managers are filled over subscribed, and so

706
00:44:29,520 --> 00:44:32,160
Speaker 1: for you are or I Barry or even you know,

707
00:44:32,200 --> 00:44:34,920
Speaker 1: if you're on sit on a committee of an endowment,

708
00:44:35,440 --> 00:44:38,920
Speaker 1: if you're going to start private equity today, the list

709
00:44:39,080 --> 00:44:42,160
Speaker 1: of general partners that you will get access to is

710
00:44:42,160 --> 00:44:44,440
Speaker 1: probably a very small list, and it's probably maybe not

711
00:44:44,520 --> 00:44:47,200
Speaker 1: the top quartile list. And that gets back to why

712
00:44:47,239 --> 00:44:49,920
Speaker 1: we went with harbor Vest thirty eight years of doing

713
00:44:49,960 --> 00:44:55,000
Speaker 1: this UM and and by being an investor early and consistently,

714
00:44:55,960 --> 00:44:59,000
Speaker 1: access is granted to those who have been there first

715
00:44:59,080 --> 00:45:01,719
Speaker 1: and who have been there insistantly. So I think it

716
00:45:01,760 --> 00:45:04,200
Speaker 1: will be a challenge for someone who is entering private

717
00:45:04,239 --> 00:45:08,320
Speaker 1: equity today to get top quartile managers unless they're working

718
00:45:08,320 --> 00:45:11,239
Speaker 1: with someone like Vanguard or someone like a harbor Vest,

719
00:45:11,280 --> 00:45:14,360
Speaker 1: because access will not be there if you try to

720
00:45:14,440 --> 00:45:16,799
Speaker 1: just you know, do this on your own. And if

721
00:45:16,840 --> 00:45:20,880
Speaker 1: I recall correctly, Vanguard has something like thirty million clients.

722
00:45:21,360 --> 00:45:24,960
Speaker 1: Is that number about Riot? That is right? Yeah, that's right, Barry.

723
00:45:25,040 --> 00:45:26,319
Speaker 1: So you know a lot of times people look at

724
00:45:26,360 --> 00:45:28,680
Speaker 1: our size and a U M. But I would really

725
00:45:28,719 --> 00:45:31,400
Speaker 1: direct you know, the a U M is you know,

726
00:45:31,920 --> 00:45:36,640
Speaker 1: we are just the professional steward of thirty million investors.

727
00:45:36,640 --> 00:45:41,000
Speaker 1: It's their assets, They own the assets. We are managing

728
00:45:41,000 --> 00:45:44,560
Speaker 1: those assets on on the behalf of these investors thirty

729
00:45:44,560 --> 00:45:47,719
Speaker 1: million who have entrusted us to do well for them.

730
00:45:48,040 --> 00:45:54,000
Speaker 1: So clearly you have the expertise in terms of custodying

731
00:45:54,080 --> 00:45:58,360
Speaker 1: assets and reporting and doing the performance reporting as well.

732
00:45:58,880 --> 00:46:02,320
Speaker 1: But private equity seems like a unique set of I

733
00:46:02,360 --> 00:46:06,880
Speaker 1: don't want to say nightmares, but it's so complicated given

734
00:46:07,560 --> 00:46:10,879
Speaker 1: how money is not only placed but drawn down over

735
00:46:11,000 --> 00:46:15,759
Speaker 1: time time and investing um in funds as needed as

736
00:46:15,800 --> 00:46:20,239
Speaker 1: opportunities come along. What were some of the real complications

737
00:46:20,280 --> 00:46:25,399
Speaker 1: of setting up the back office of private equity when

738
00:46:25,400 --> 00:46:28,919
Speaker 1: you're working with Vanguard and Harbor Vest. Yeah, I'm glad

739
00:46:28,960 --> 00:46:30,520
Speaker 1: you asked that, Barry, because a lot of times the

740
00:46:30,520 --> 00:46:33,239
Speaker 1: focus is all on the investment and performance and the

741
00:46:33,239 --> 00:46:35,880
Speaker 1: diversification and the outcomes. But you are correct to the

742
00:46:35,920 --> 00:46:39,320
Speaker 1: client experience and how this works is not as simple

743
00:46:39,320 --> 00:46:42,879
Speaker 1: as buying an ep F for a mutual fund um.

744
00:46:42,560 --> 00:46:47,799
Speaker 1: And we spend a lot of time and technology dollars

745
00:46:48,320 --> 00:46:50,480
Speaker 1: um to make sure that this would you know, not

746
00:46:50,560 --> 00:46:53,120
Speaker 1: only would the investment experience be world class, but the

747
00:46:53,200 --> 00:46:56,200
Speaker 1: client experience would be world class. So we put a

748
00:46:56,239 --> 00:46:58,840
Speaker 1: lot of time and energy and effort to make sure

749
00:46:59,440 --> 00:47:04,040
Speaker 1: that the interface and how the capital calls work UM.

750
00:47:04,040 --> 00:47:10,000
Speaker 1: And how everything now being digital online really helps improve

751
00:47:10,120 --> 00:47:13,359
Speaker 1: the experience for clients. So not only do we we

752
00:47:13,440 --> 00:47:16,560
Speaker 1: believe we will have a world class investment experience, but

753
00:47:16,680 --> 00:47:20,319
Speaker 1: we believe we will have a world class client experience UM.

754
00:47:20,360 --> 00:47:22,479
Speaker 1: And I think it's again, why you know, thinking about

755
00:47:22,560 --> 00:47:26,000
Speaker 1: it more as an advised part of an advised multi

756
00:47:26,080 --> 00:47:29,520
Speaker 1: asset class where we are moving all of the money around,

757
00:47:30,080 --> 00:47:34,560
Speaker 1: whether it's rebalancing their capital calls, certainly self directed ultra

758
00:47:34,600 --> 00:47:36,719
Speaker 1: high net worth clients who are used to this, are

759
00:47:36,840 --> 00:47:39,400
Speaker 1: used to how this works. Um But I think in

760
00:47:39,400 --> 00:47:42,680
Speaker 1: an advised capacity, whether it's through our o C, i OH,

761
00:47:43,360 --> 00:47:47,279
Speaker 1: our personal advisor services, or maybe one day in a TRF,

762
00:47:47,840 --> 00:47:52,000
Speaker 1: we can alleviate a lot of that mechanical cash flow

763
00:47:52,680 --> 00:47:56,800
Speaker 1: capital call, moving it from public markets to private markets

764
00:47:56,880 --> 00:48:00,040
Speaker 1: and back. And I think that will only improve the

765
00:48:00,080 --> 00:48:02,480
Speaker 1: experience of clients. They won't don't see one nab A

766
00:48:02,640 --> 00:48:06,520
Speaker 1: one one turtle return of all their investments rolled up,

767
00:48:07,000 --> 00:48:09,319
Speaker 1: and I think the experience will be enhanced from that.

768
00:48:10,120 --> 00:48:12,719
Speaker 1: So I have a few questions left before I get

769
00:48:12,760 --> 00:48:18,120
Speaker 1: to my favorite questions, and let's stick with Vanguard. I

770
00:48:18,200 --> 00:48:23,200
Speaker 1: haven't heard many of your competitors looking into private equity

771
00:48:23,360 --> 00:48:27,719
Speaker 1: as an mass asset class for their investors. What is

772
00:48:27,760 --> 00:48:30,680
Speaker 1: it about Vanguard? What do you bring to the table

773
00:48:30,760 --> 00:48:34,080
Speaker 1: that makes you so uniquely suited to do this? You

774
00:48:34,480 --> 00:48:38,680
Speaker 1: seem to be the only large asset manager that's looking

775
00:48:38,719 --> 00:48:45,040
Speaker 1: to forget democratizing stocks. You're looking to democratize private equity. Yeah.

776
00:48:45,080 --> 00:48:47,560
Speaker 1: I think that's a student observation, Verry. I think it

777
00:48:47,600 --> 00:48:50,680
Speaker 1: gets back to our roots and our mission and why

778
00:48:50,760 --> 00:48:55,319
Speaker 1: Vanguard was founded. Um. No, indexing was around before we

779
00:48:55,400 --> 00:48:57,799
Speaker 1: started Vanguard. I mean, it was an institutional you know,

780
00:48:57,840 --> 00:49:01,759
Speaker 1: you know, Samsonite and well sparked go. So indexing was around,

781
00:49:02,200 --> 00:49:06,520
Speaker 1: active management around, and so Vanguard's whole purpose and mission

782
00:49:07,239 --> 00:49:12,239
Speaker 1: was to take you know, institutional investment offerings that have

783
00:49:12,360 --> 00:49:17,240
Speaker 1: served these large asset pools well down to main street,

784
00:49:17,320 --> 00:49:20,359
Speaker 1: mom and pop investors. So I think that's probably why

785
00:49:20,480 --> 00:49:24,920
Speaker 1: you see us trying to democratize or equal access this

786
00:49:25,480 --> 00:49:29,279
Speaker 1: too investors who need it the most. Obviously, sovereign wealth

787
00:49:29,320 --> 00:49:33,560
Speaker 1: funds and endowments have been very well served by private equity,

788
00:49:33,600 --> 00:49:36,839
Speaker 1: and they don't need Vanguard necessarily to do private equity.

789
00:49:36,920 --> 00:49:39,640
Speaker 1: And so our goal and our mission from our founding

790
00:49:40,200 --> 00:49:43,279
Speaker 1: was to make sure that the little person, and you know,

791
00:49:43,360 --> 00:49:46,319
Speaker 1: the mom and pop investor, the main street investor, was

792
00:49:46,360 --> 00:49:49,080
Speaker 1: on a level footing with the largest sovereign wealth funds

793
00:49:49,080 --> 00:49:51,920
Speaker 1: and the largest endowments and foundations. So I think this

794
00:49:52,040 --> 00:49:54,960
Speaker 1: plays right in our entire routs and our mission, in

795
00:49:55,040 --> 00:49:57,759
Speaker 1: our history. So I love this quote of yours on

796
00:49:57,840 --> 00:50:01,239
Speaker 1: this this basic concept quote. It took us thirty five

797
00:50:01,360 --> 00:50:04,440
Speaker 1: years to do this on indexing, twenty years to do

798
00:50:04,480 --> 00:50:07,200
Speaker 1: it on active funds. So maybe twenty years from now,

799
00:50:07,680 --> 00:50:11,400
Speaker 1: private equity and its access to world class managers for

800
00:50:11,520 --> 00:50:15,200
Speaker 1: the average investor will look very much like indexing did

801
00:50:15,840 --> 00:50:20,640
Speaker 1: over the course of nineteen seventy to Yeah, so I

802
00:50:20,680 --> 00:50:23,080
Speaker 1: think that's exactly right. That is our hope and that's

803
00:50:23,080 --> 00:50:27,799
Speaker 1: our aspiration. When I arrived at Vanguard in it's hard

804
00:50:27,840 --> 00:50:31,440
Speaker 1: to believe indexing assets were around eight percent of mutual

805
00:50:31,440 --> 00:50:36,160
Speaker 1: fund assets UM, and so it did take quite a while. Uh.

806
00:50:36,360 --> 00:50:38,759
Speaker 1: You may remember, you know, indexing was called on an

807
00:50:38,719 --> 00:50:42,640
Speaker 1: American UM. The advisor community did not want any part

808
00:50:42,680 --> 00:50:45,040
Speaker 1: of indexing because the value probably Let this gets back

809
00:50:45,040 --> 00:50:47,120
Speaker 1: to some of the work we've done on advisors alpha

810
00:50:47,640 --> 00:50:51,239
Speaker 1: the value proposition of most advisors where hired me and

811
00:50:51,239 --> 00:50:56,000
Speaker 1: I'll perform, you know, outperformed the index through tactical allocation

812
00:50:56,440 --> 00:51:00,680
Speaker 1: or managers selection. And so to see, uh, you know,

813
00:51:00,800 --> 00:51:04,600
Speaker 1: the diffusion of indexing over the last twenty years has

814
00:51:04,600 --> 00:51:08,239
Speaker 1: been amazing, and you know, we hope and we you know,

815
00:51:08,440 --> 00:51:10,839
Speaker 1: think that this would be the right thing to do, uh,

816
00:51:10,880 --> 00:51:14,200
Speaker 1: to try to follow that same template for private equity

817
00:51:14,239 --> 00:51:18,160
Speaker 1: for main street investors. So let's use that template and

818
00:51:18,160 --> 00:51:22,799
Speaker 1: and look forward ten or twenty years from now when

819
00:51:22,840 --> 00:51:29,400
Speaker 1: you're looking at the ensuing forty period, what would be

820
00:51:29,480 --> 00:51:33,359
Speaker 1: your measure of success for this project? What metrics are

821
00:51:33,400 --> 00:51:35,759
Speaker 1: you going to look at to be able to make

822
00:51:35,800 --> 00:51:39,560
Speaker 1: the determination? Hey, this was every bit as successful as

823
00:51:39,640 --> 00:51:45,799
Speaker 1: indexing and active management was in the earlier iterations of Vanguard. Yeah,

824
00:51:45,840 --> 00:51:48,280
Speaker 1: so I mentioned a couple of times. Growth and cash

825
00:51:48,320 --> 00:51:53,600
Speaker 1: flow has never been Vanguard's mission. We believe that growth

826
00:51:53,840 --> 00:51:58,600
Speaker 1: and cash flow is an outcome of serving investors well

827
00:51:58,680 --> 00:52:02,719
Speaker 1: and serving them prudently. So my success metrics would be

828
00:52:02,800 --> 00:52:06,080
Speaker 1: that the performance comes through somewhere like we indicated three

829
00:52:06,080 --> 00:52:10,719
Speaker 1: to four paces points over, it's provided diversification, and that

830
00:52:10,880 --> 00:52:14,200
Speaker 1: investors who need private equity the most, And I would

831
00:52:14,239 --> 00:52:17,160
Speaker 1: say that those are those who are saving for retirement,

832
00:52:17,360 --> 00:52:20,160
Speaker 1: those who do not have access to it now have

833
00:52:20,320 --> 00:52:23,640
Speaker 1: access to it. And if those things three things hold

834
00:52:24,320 --> 00:52:30,480
Speaker 1: good performance, good diversification, good client experience and access is granted,

835
00:52:31,320 --> 00:52:34,560
Speaker 1: we would we would expect our share of the private

836
00:52:34,560 --> 00:52:40,200
Speaker 1: equity market UH to look quite large. But again the

837
00:52:40,280 --> 00:52:42,720
Speaker 1: goal is not to have van Guard be a leader

838
00:52:42,719 --> 00:52:45,839
Speaker 1: in private equity or to build assets or to take

839
00:52:45,880 --> 00:52:48,160
Speaker 1: on growth. We think that would be an outcome of

840
00:52:48,160 --> 00:52:52,040
Speaker 1: in serving investors very very well, and investors typically vote

841
00:52:52,040 --> 00:52:53,759
Speaker 1: with their feet, and that's what we have seen. It's

842
00:52:53,760 --> 00:52:57,319
Speaker 1: a smart population and we think it's an outcome of

843
00:52:57,520 --> 00:53:01,360
Speaker 1: being served very well. Quite interesting. I know I only

844
00:53:01,400 --> 00:53:04,080
Speaker 1: have you for a limited amount of time, so let's

845
00:53:04,239 --> 00:53:07,719
Speaker 1: jump to our favorite questions that we ask all of

846
00:53:07,760 --> 00:53:12,000
Speaker 1: our guests, starting with, UH, tell us what you've been

847
00:53:12,040 --> 00:53:15,480
Speaker 1: streaming during this period of work from home? What are

848
00:53:15,480 --> 00:53:18,600
Speaker 1: you watching on Netflix or Amazon Prime? Or what podcasts

849
00:53:18,600 --> 00:53:23,080
Speaker 1: are keeping you entertained? Yes, I think kind of new

850
00:53:23,120 --> 00:53:26,400
Speaker 1: early on. My My brother is in internal medicine and

851
00:53:26,480 --> 00:53:28,320
Speaker 1: runs the I C You here at Penn, So I

852
00:53:28,400 --> 00:53:30,359
Speaker 1: kind of knew early on that this might play out

853
00:53:30,440 --> 00:53:34,480
Speaker 1: longer to stay from home than than most And so

854
00:53:34,560 --> 00:53:37,960
Speaker 1: I decided to revisit some of the all time classic

855
00:53:38,040 --> 00:53:40,280
Speaker 1: or at least, in my opinion, the all time classic

856
00:53:40,320 --> 00:53:43,959
Speaker 1: TV series for a second and in some instances a third.

857
00:53:43,960 --> 00:53:48,759
Speaker 1: But these are big time commitments, So things like Breaking Bad, Uh,

858
00:53:48,840 --> 00:53:52,600
Speaker 1: The Americans, and Homeland I have rewatched and I've enjoyed

859
00:53:52,640 --> 00:53:54,759
Speaker 1: every second. So I went back to at least what

860
00:53:54,800 --> 00:53:58,040
Speaker 1: I would call as some of the classics. But but

861
00:53:58,040 --> 00:54:00,080
Speaker 1: but as a big time commitment, and I thought I

862
00:54:00,080 --> 00:54:01,719
Speaker 1: would have the time to do that, and I'm glad

863
00:54:01,760 --> 00:54:05,040
Speaker 1: I did that. Quite interesting. Tell us about your early

864
00:54:05,080 --> 00:54:09,840
Speaker 1: mentors who helped shape your career. Yeah, I kind of

865
00:54:09,840 --> 00:54:13,360
Speaker 1: breaking into three stages of my career. Very first and

866
00:54:13,440 --> 00:54:17,080
Speaker 1: foremost are my parents and my grandparents. My grandparents were

867
00:54:17,160 --> 00:54:21,279
Speaker 1: very involved and my parents were very very selfless, I think,

868
00:54:21,320 --> 00:54:25,200
Speaker 1: give me unconditional love and support and just were amazing

869
00:54:25,280 --> 00:54:27,880
Speaker 1: role models. And I think that was the foundation of

870
00:54:27,920 --> 00:54:31,480
Speaker 1: all of my good luck that followed from that, and

871
00:54:31,520 --> 00:54:33,440
Speaker 1: if I moved from there, I would say my my

872
00:54:33,560 --> 00:54:37,480
Speaker 1: first experience outside of business school, I was hired by

873
00:54:37,680 --> 00:54:41,480
Speaker 1: Harold Katz and Cat's family office, which was run by

874
00:54:41,560 --> 00:54:45,640
Speaker 1: Terry gabrielle chief investment officer. This guy was a c

875
00:54:45,840 --> 00:54:48,880
Speaker 1: f A from like the seventies and um, you know,

876
00:54:48,920 --> 00:54:50,520
Speaker 1: told me right away a three years to get the

877
00:54:50,520 --> 00:54:52,040
Speaker 1: cf A. So I got the c f A at

878
00:54:52,040 --> 00:54:54,080
Speaker 1: a very young age and he taught me everything. I

879
00:54:54,200 --> 00:54:56,960
Speaker 1: you know, just sat at his hip and had a

880
00:54:56,960 --> 00:55:01,759
Speaker 1: world class experience on how to value companies, UM forensic

881
00:55:01,760 --> 00:55:04,600
Speaker 1: accounting and to be able to like just rip through

882
00:55:04,640 --> 00:55:06,920
Speaker 1: a company and figure out what it was worth. So

883
00:55:07,040 --> 00:55:10,120
Speaker 1: both Harold Katz and Terry Gabriel I think we're the

884
00:55:10,200 --> 00:55:13,160
Speaker 1: early part of my career. And if those two things

885
00:55:13,200 --> 00:55:16,279
Speaker 1: aren't lucky enough, at thirty two, I ended up at Vanguard,

886
00:55:16,360 --> 00:55:19,239
Speaker 1: and and uh, you know, just had such a luck

887
00:55:19,400 --> 00:55:23,200
Speaker 1: to be able to work with Jack Bogel closely. Um,

888
00:55:23,480 --> 00:55:26,440
Speaker 1: you know, Jack Brennan and I worked on many things together.

889
00:55:26,560 --> 00:55:30,360
Speaker 1: We're still in contact with him on a pretty regular basis.

890
00:55:30,360 --> 00:55:33,000
Speaker 1: And and and then Tim Buckley, who's our current CEO.

891
00:55:33,440 --> 00:55:35,360
Speaker 1: I've worked with him, you know, pretty much since I

892
00:55:35,480 --> 00:55:40,279
Speaker 1: landed at Vanguard. I couldn't find three more better mentors

893
00:55:40,320 --> 00:55:42,200
Speaker 1: if I tried, and the three of them, so I've

894
00:55:42,239 --> 00:55:45,000
Speaker 1: just been very blessed. Yeah, that's that's quite a murderous

895
00:55:45,120 --> 00:55:49,160
Speaker 1: row of of people to help guide your career. Uh,

896
00:55:49,280 --> 00:55:52,120
Speaker 1: let's talk about books. Tell us some of your favorites

897
00:55:52,280 --> 00:55:54,719
Speaker 1: and what are you reading right now? So some of

898
00:55:54,760 --> 00:55:57,480
Speaker 1: my favorites, and its fried back to my what I'm streaming.

899
00:55:57,560 --> 00:56:01,040
Speaker 1: I've read you know, probably a dozen times, would be

900
00:56:01,080 --> 00:56:05,320
Speaker 1: too by talib Fooled by Randomness is probably my favorite,

901
00:56:05,440 --> 00:56:09,399
Speaker 1: and the others Anti Fragile highly recommended for those who

902
00:56:09,440 --> 00:56:12,880
Speaker 1: have not read them. Uh. Then then Michael Lewis is

903
00:56:12,880 --> 00:56:16,799
Speaker 1: the undoing project. It's it's really about the special relationship

904
00:56:16,880 --> 00:56:19,360
Speaker 1: between condomen and diversity and all they've been able to

905
00:56:19,400 --> 00:56:24,000
Speaker 1: accomplish around human behavior. And I'll stick with you know,

906
00:56:24,040 --> 00:56:28,400
Speaker 1: Condomen and Diversity. Uh. Their book Judgment Under Uncertainty is

907
00:56:28,440 --> 00:56:31,520
Speaker 1: still one of the classics of all time as far

908
00:56:31,560 --> 00:56:35,279
Speaker 1: as currently, um, you know mostly what I read. You know,

909
00:56:35,320 --> 00:56:37,440
Speaker 1: it's just so much to stay on top of the

910
00:56:37,480 --> 00:56:41,160
Speaker 1: investment news and the news commentary. So I'm very grateful

911
00:56:41,320 --> 00:56:44,960
Speaker 1: for you, Barry, you doing an aggregation each night. I

912
00:56:45,040 --> 00:56:47,680
Speaker 1: look forward to, you know, getting your email, and you know,

913
00:56:47,719 --> 00:56:49,839
Speaker 1: there's so much news out there, So I would say

914
00:56:49,840 --> 00:56:52,120
Speaker 1: on a daily basis, I'm using some of the key

915
00:56:52,160 --> 00:56:56,560
Speaker 1: aggregators always use yours as first and foremost. So the

916
00:56:56,680 --> 00:56:59,080
Speaker 1: daily news stream is a lot, and I saved the

917
00:56:59,080 --> 00:57:01,239
Speaker 1: books for when I'm you know, have some downtime on

918
00:57:01,280 --> 00:57:05,520
Speaker 1: summer vacation over the holidays. Really interesting and thank you

919
00:57:05,600 --> 00:57:09,799
Speaker 1: for uh those kudos. What sort of advice would you

920
00:57:09,800 --> 00:57:12,960
Speaker 1: give to a recent college grad who was interested in

921
00:57:13,040 --> 00:57:18,000
Speaker 1: a career in either investment management or private equity, John

922
00:57:18,040 --> 00:57:20,360
Speaker 1: would I would tell him to go for it. I

923
00:57:20,440 --> 00:57:24,280
Speaker 1: see so many opportunities on the horizon in investment banking,

924
00:57:24,400 --> 00:57:26,960
Speaker 1: and private equity or you know what you do there

925
00:57:27,000 --> 00:57:30,600
Speaker 1: as a wealth advisor. I see all three being win

926
00:57:30,680 --> 00:57:34,080
Speaker 1: win win career opportunities. You know, it's a win first

927
00:57:34,120 --> 00:57:36,440
Speaker 1: and foremost for the clients that you serve, and I

928
00:57:36,520 --> 00:57:38,720
Speaker 1: think that makes you know, you feel really good about

929
00:57:38,720 --> 00:57:40,520
Speaker 1: what you're doing every day that you're actually putting your

930
00:57:40,560 --> 00:57:43,680
Speaker 1: clients first. But also personally, it's it's a profession that

931
00:57:43,720 --> 00:57:46,440
Speaker 1: if you do it well, the rewards would come to

932
00:57:46,480 --> 00:57:48,600
Speaker 1: you and your family, and that's you know, that's always

933
00:57:48,600 --> 00:57:51,320
Speaker 1: a good thing. And then lastly, it's a continuous learning.

934
00:57:51,400 --> 00:57:55,200
Speaker 1: Right The markets are always changing, uh you know you are.

935
00:57:55,600 --> 00:57:59,280
Speaker 1: The headlines change daily and weekly. So what I'm learning

936
00:57:59,320 --> 00:58:01,640
Speaker 1: in today is so much different than I did last

937
00:58:01,720 --> 00:58:04,520
Speaker 1: year and year before that. So to me, these are

938
00:58:04,600 --> 00:58:07,960
Speaker 1: not zero sum game activities, but these are positive sum

939
00:58:08,040 --> 00:58:11,439
Speaker 1: game activities. So I would highly recommend anyone thinking about

940
00:58:11,480 --> 00:58:14,880
Speaker 1: going into the investment for wealth planning world. And our

941
00:58:14,920 --> 00:58:17,560
Speaker 1: final question, what do you know about the world of

942
00:58:17,640 --> 00:58:20,960
Speaker 1: investing today? You wish you knew twenty five or so

943
00:58:21,120 --> 00:58:24,560
Speaker 1: years ago when you were first getting started in the nineties,

944
00:58:24,840 --> 00:58:28,560
Speaker 1: long before you ended up at Vanguard. Yeah, I wish

945
00:58:28,600 --> 00:58:31,280
Speaker 1: I knew today and had a better way to track

946
00:58:32,120 --> 00:58:36,160
Speaker 1: opportunity costs. Um. And what I mean by that, Barry

947
00:58:36,240 --> 00:58:39,760
Speaker 1: is you know, um, we we often only judge what

948
00:58:39,840 --> 00:58:43,800
Speaker 1: we did, yet we don't judge what we could have done.

949
00:58:44,600 --> 00:58:46,600
Speaker 1: And you know we mentioned as a couple of times.

950
00:58:46,800 --> 00:58:51,160
Speaker 1: I think more bear markets have been created by investors

951
00:58:51,320 --> 00:58:54,720
Speaker 1: own beliefs in what the future will look like than

952
00:58:54,760 --> 00:58:58,800
Speaker 1: actual bear markets themselves. And if we actually kept score

953
00:58:59,440 --> 00:59:03,160
Speaker 1: personally or individually of what we did versus what we

954
00:59:03,360 --> 00:59:05,800
Speaker 1: should have done, I think the gap is going to

955
00:59:05,960 --> 00:59:10,160
Speaker 1: really surprise people. Um. Also, the opportunity costs of of

956
00:59:10,160 --> 00:59:13,240
Speaker 1: of comfort. Right, Yeah, we're talking about where bonds are today.

957
00:59:13,320 --> 00:59:19,760
Speaker 1: Under no one wants to lose in COVID or in GFC,

958
00:59:20,440 --> 00:59:23,600
Speaker 1: but if you have a thirty year horizon, didn't matter

959
00:59:23,880 --> 00:59:26,200
Speaker 1: over that one or two years. So we pay a

960
00:59:26,280 --> 00:59:29,840
Speaker 1: huge opportunity cost for comfort if you have a thirty

961
00:59:29,880 --> 00:59:32,680
Speaker 1: year horizon or a twenty year horizon. I just would

962
00:59:32,720 --> 00:59:36,160
Speaker 1: ask everyone to examine the opportunity costs they are creating

963
00:59:36,160 --> 00:59:40,160
Speaker 1: for themselves for such comfort. Right. And you know, the

964
00:59:40,160 --> 00:59:43,200
Speaker 1: the equity risk premium has been about five basis points

965
00:59:43,200 --> 00:59:47,960
Speaker 1: over bonds probably likely to hold, if not be above that.

966
00:59:48,520 --> 00:59:51,480
Speaker 1: We've talked about private equity being three to four over that,

967
00:59:51,760 --> 00:59:55,000
Speaker 1: so maybe eight to ten over bonds and so yeah,

968
00:59:55,120 --> 00:59:59,120
Speaker 1: we are risk averse creatures. We hate loss, and I

969
00:59:59,120 --> 01:00:01,640
Speaker 1: think that's nap troll to hate loss and all the

970
01:00:01,720 --> 01:00:04,520
Speaker 1: loss a version. But just do it with eyes wide

971
01:00:04,560 --> 01:00:08,800
Speaker 1: open on what the opportunity cost you are creating for

972
01:00:08,880 --> 01:00:13,439
Speaker 1: the comfort of short term volatility. Huh makes sense, Fran,

973
01:00:13,720 --> 01:00:16,360
Speaker 1: This has really been very fascinating. Thank you for being

974
01:00:16,400 --> 01:00:20,000
Speaker 1: so generous with your time. We have been speaking with

975
01:00:20,040 --> 01:00:25,360
Speaker 1: Fran Kinary. He is Vanguard's global head of private Investments.

976
01:00:25,880 --> 01:00:29,040
Speaker 1: If you enjoy this conversation, well be sure and check

977
01:00:29,080 --> 01:00:32,160
Speaker 1: out any of our previous three hundred and fifties something

978
01:00:32,880 --> 01:00:37,480
Speaker 1: prior discussions. You can find those wherever you feed your podcast,

979
01:00:37,560 --> 01:00:42,240
Speaker 1: fix iTunes, Spotify, a cast, wherever. We love your comments, feedback,

980
01:00:42,280 --> 01:00:46,280
Speaker 1: end suggestions right to us at m IB podcast at

981
01:00:46,280 --> 01:00:50,320
Speaker 1: Bloomberg dot net. What Fran was discussing the daily reading

982
01:00:50,320 --> 01:00:53,000
Speaker 1: list that goes out every day at seven am. You

983
01:00:53,040 --> 01:00:56,919
Speaker 1: can sign up for that uh at Ridoltz dot com.

984
01:00:57,000 --> 01:01:00,840
Speaker 1: Check out my weekly column on Bloomberg dot com slash Opinion.

985
01:01:01,360 --> 01:01:04,240
Speaker 1: Follow me on Twitter at rid Halts I would be

986
01:01:04,280 --> 01:01:06,920
Speaker 1: remiss if I did not thank the wonderful team that

987
01:01:06,960 --> 01:01:11,520
Speaker 1: helps put these conversations together each week. Maroufal is my

988
01:01:11,680 --> 01:01:17,280
Speaker 1: audio engineer. Harris Walt is my producer. This week, my

989
01:01:17,440 --> 01:01:21,680
Speaker 1: project manager is Tracy Walsh. Michael Batnick is my head

990
01:01:21,720 --> 01:01:25,560
Speaker 1: of research. I'm Barry Rich Halts. You've been listening to

991
01:01:25,680 --> 01:01:28,360
Speaker 1: master some in Business on Bloomberg Radio