Speaker 1: Bloomberg Audio Studios, podcasts, radio news. We welcome now our
Speaker 1: TV and radio audiences worldwide, and pleased to say we're
Speaker 1: joined by Vanguard CEO Salem Ramji in an exclusive conversation, Slim.
Speaker 1: Great to have you with us. So we all saw
Speaker 1: the red to be here, Katie, Thank you. We saw
Speaker 1: the ripple effects from Monday's move. And your average fee
Speaker 1: now is just seven basis points across your lineup. The
Speaker 1: industry average for contexts forty four basis points. Set the
Speaker 1: scene for us.
Speaker 2: Why now, well, you know, in one sense, I will
Speaker 2: say Monday was a pretty joyous day here at Vanguard,
Speaker 2: and it was joyous because it really is a reaffirmation
Speaker 2: of our business model where we're owned by our clients
Speaker 2: and so as a result, as we gain scale economies
Speaker 2: here at the company, we share those back with our clients.
Speaker 2: And that's not just been true since Monday, It's been
Speaker 2: true since nineteen seventy five, since when we founded the company.
Speaker 2: And so this was continuing on a two thousand price
Speaker 2: cuts I think by our tally as of last week
Speaker 2: now it's twenty one hundred and sixty eight price cuts,
Speaker 2: and that's been part of the proposition that investors have
Speaker 2: had with Vanguard for decades.
Speaker 1: And so Salim, I think I'm asking on part of
Speaker 1: your competitors, but also investors as well, when I asked
Speaker 1: how low can thees go? You're at seven basis points
Speaker 1: right now. Where is the possible floor here?
Speaker 2: Well, you know, we don't price products as loss leaders.
Speaker 2: We're not looking to you know, price abnormally low in
Speaker 2: order to get somebody into a higher cost other service.
Speaker 2: And so we really look at it across the board
Speaker 2: in terms of our scale economies. We want to deliver
Speaker 2: great quality and great performance. And I think that the
Speaker 2: thing that sometimes gets lost in the mix. Obviously, index
Speaker 2: prices have been coming down for quite time, led by
Speaker 2: us over the past several decades. But sometimes it gets
Speaker 2: confused that we were all about index. We're actually about
Speaker 2: active and index. And really, if you go back to
Speaker 2: our origins, what Bogel was against was high fees, and
Speaker 2: so active management at a low fee can really outperform
Speaker 2: over the long term if delivered with the right quality.
Speaker 2: That was Bogel's hypothesis in the seventies and eighties, And
Speaker 2: if you look at our track record even just in
Speaker 2: something like active fixed income. The empirical evidence backs up
Speaker 2: that hypothesis that he had way back then. Ninety one
Speaker 2: percent of our active fixed income outperforms its peers over
Speaker 2: the past ten years. And one of the reasons why
Speaker 2: is because we price it at just over ten basis
Speaker 2: points and so at a very low fee. And you know,
Speaker 2: when you speak to our fixed income team, to Sarah
Speaker 2: Devereux our CIO and our teams who run our fixed income,
Speaker 2: part of the reason they're able to outperform is they
Speaker 2: have a much lower headwind from higher fees, and so
Speaker 2: they're able to take risks in a much better and
Speaker 2: more disciplined way. And so what this is really about
Speaker 2: is not just about delivering high quality index management, but
Speaker 2: it's really about delivering high quality investment management at a
Speaker 2: very low fee. And I think whether you're looking at
Speaker 2: active fixed income or whether you're looking at index fixed
Speaker 2: income or index equities, that's really what we've been.
Speaker 1: About, right Well, Selim, you make the point that a
Speaker 1: lot of people probably think of Vanguard and they don't
Speaker 1: think of active and you do, have, of course active
Speaker 1: funds out there, but it's a pretty small percentage of
Speaker 1: your overall lineup, especially if you take a look at
Speaker 1: the ETF side of things. Should we expect to see
Speaker 1: more active fund launches from you?
Speaker 2: Yeah, you know, our active management the first Vanguard funds
Speaker 2: are actually active funds if you go back to the
Speaker 2: seventies and both we manage our active fixed income within Vanguard.
Speaker 2: We have a whole range of partners subadvisors that we
Speaker 2: work with for our fundamental act of equities, and they're
Speaker 2: unified by the principle of being high quality at a
Speaker 2: low price. And yeah, Katie, you already have seen us
Speaker 2: doing a lot more in active ETFs, and I think
Speaker 2: you've seen that pick up over the past several months,
Speaker 2: and I hope and expect that will continue over the
Speaker 2: next you know, this year.
Speaker 1: And next year, all right, So we'll keep an eye
Speaker 1: out for that. You were talking a little bit about,
Speaker 1: of course, how the ownership structure works at Vanguard. How
Speaker 1: basically all a lot of the extra cash, the extra
Speaker 1: assets that you generate are funneled towards these fee cuts.
Speaker 1: But I'm curious from where you sit, how do you
Speaker 1: balance lowering fees versus investing in the business. What does
Speaker 1: that decision tree look like.
Speaker 2: Yeah, it's something we do very carefully here, and you
Speaker 2: know this week is all about our fee cuts and
Speaker 2: giving back to our clients in the form of lower fees.
Speaker 2: We've also stepped up our investments in things like technology.
Speaker 2: That's something that really began about two three years ago
Speaker 2: and is continuing this year and next year. Because we're
Speaker 2: always trying to balance making sure that we've got high
Speaker 2: quality products at a low cost and we're delivering the
Speaker 2: right level of service to clients. We're investing in newer
Speaker 2: technologies to make our investing even more efficient, to make
Speaker 2: our client interfaces even more efficient. So that's always a
Speaker 2: balancing act here at Vanguard, just like it isn't many
Speaker 2: companies in terms of how do we think for the
Speaker 2: near term and how do we think for the medium
Speaker 2: to longer term. But I'd say one of the beauties
Speaker 2: of Vanguard. I think part of the original genius of
Speaker 2: Vanguard is that when we've got a surplus, after we've
Speaker 2: looked at the important investments we need to make back
Speaker 2: in things like technology, the way we give back to
Speaker 2: our owners is through lower fees. And I think that's
Speaker 2: the Vanguard effect that you've been seeing for decades all
Speaker 2: across the company.
Speaker 1: Yeah, that Vanguard effect obviously a good news story for
Speaker 1: your investors, maybe not for your competitors. But I do
Speaker 1: want to talk about the future, and I want to
Speaker 1: talk specifically about private markets and alts. One of the
Speaker 1: big take stories that we have on the terminal right
Speaker 1: now is about PIMCO and fears that PIMCO might be
Speaker 1: falling behind in alts because you take a look at
Speaker 1: the industry right now and a lot of your peers
Speaker 1: have invested heavily in alts in privates to scale up there.
Speaker 1: What is your plan when it comes to those areas
Speaker 1: and do you fear that you're a little bit behind
Speaker 1: right now?
Speaker 2: Well one of the again one of the great benefits
Speaker 2: of our business model, if you go back to the origin,
Speaker 2: we had sub advisors. You know, for example, at our
Speaker 2: beginning we are and are still sub advised by Wellington Management,
Speaker 2: which is still our largest sub advisor today. And so
Speaker 2: where we don't have capabilities within kind of Vanguard, we've
Speaker 2: long had an ability to partner with other firms. To date,
Speaker 2: we've generally done in fundamental active equities, but we can
Speaker 2: do it in things like private markets, and there's lots
Speaker 2: of discussions and explorations we have underway to see what's possible.
Speaker 2: But our north star is always about what's right for
Speaker 2: our clients, and it's making sure that whatever it is
Speaker 2: we do inactive in index ourselves or with others, that
Speaker 2: we keep in mind that we're about simplicity, we're about
Speaker 2: low cost, and we're about long term returns. And I
Speaker 2: think that there are constructs that will allow private markets
Speaker 2: to fit in that. But that's really part of the
Speaker 2: exploration that we're doing because whatever it is we do,
Speaker 2: we want to do it the Vanguard way, and we
Speaker 2: want to do it in a way that's well suited
Speaker 2: to our client base, which is really looking to us
Speaker 2: for a certain set of things that we've consistently delivered
Speaker 2: over the years.
Speaker 1: All right, Seleem got to leave it there. Really appreciate
Speaker 1: you taking the time. That is Vanguard's CEO Salem ramj