This week, we speak with Bill McNabb, chief executive officer and chairman of Vanguard Group since 2008. (hear our prior 2015 conversation with McNabb here). Vanguard now has about $4 trillion in assets under management; about two thirds of that is passively indexed, the rest are actively managed. The index fund, created by Vanguard founder Jack Bogle, just celebrated its 40th anniversary.
As a recent Chair of the Investment Company Insititute (ICI), McNabb has had numerous discussions with his peers at other firms on important issues, like short term focus of corporate management and just how activist shareholders like Vanguard should be.
We discuss the cost aspect of investment management – not only on the passive side of indexing, but as applied to active management. Economies of scale allow Vanguard, Blackrock, State Street, and other huge firms to spread those costs across a very large asset base. There is a finite limit of how far scale can lower prices, and while we are not at the absolute limit, we are getting close.
We also discuss about the role of the technology and how it impacts pricing.
McNabb also addressed Corporate governance issues and ESG (Environmental Sustainability and Governance) investing as a relatively new focus at Vanguard. They created a FTSE based ESG fund, and expect to have more ESG-type funds in the near future.
We geek out on sci-fi writers in the podcast portion of the conversation (all the books we discuss can be found here).
Please send your comments and suggestions to MIBPodcast at Bloomberg dot net.
Next week, we speak with Aswath Damodaran from NYU.