| NEW YORK
NEW YORK Tim Buckley, who takes over as chief investment officer at The Vanguard Group in January, has never managed money in his 20 years at the firm. He has no plans to make big market calls and he won't micro-manage his team's thinking or strategies.
There isn't any of the swagger you might expect from a guy charged with running the money at the No.1 U.S. fund company. Instead, the 43-year-old father of three says his top priority is to focus the firm's 300-strong group of portfolio managers, analysts and traders to be more efficient.
That's something Buckley says is crucial to help Vanguard maintain its place as the lowest-cost provider of mutual funds and exchange-traded funds. "There is only one firm that is lowest cost," Buckley said.
Vanguard's approach, whether seen as cheapskate or value for money, has helped the firm surpass rival Fidelity Investments to become the largest U.S. provider of open-end and closed-end mutual funds and ETFs. Vanguard, based in suburban Philadelphia, has $1.9 trillion in mutual fund, closed-end and variable annuity assets, up from $1.33 trillion five years ago, according to Lipper, a unit of Thomson Reuters.
Vanguard offers actively-managed equity funds - most are managed by outside firms like Wellington Investments and PRIMECAP Management Company. But its bread and butter has been in passive management, which has been popular in recent years after many active managers failed to deliver returns.
"Vanguard owns the low-cost attribute in the public's minds," said Don Phillips, president of Morningstar's investment research division. "Whereas Fidelity wanted to own equity performance, Vanguard wanted low cost, and that gave it a leg up."
Much of Vanguard's recent growth has come from its exchange-traded fund business. The firm's U.S. market share in ETFs has increased 29 percent in the past two years. It now holds 17.9 percent of the market, whittling away at the dominance of competitor BlackRock Inc, which has seen its market share fall to 40.6 percent from 46.6 over the same period.
BlackRock and others are slashing costs on ETFs to match or undercut Vanguard. Early in September, BlackRock's Chairman and CEO Laurence Fink announced that the firm will lower expenses on a number of its ETFs to better compete with Vanguard. And on September 20, Charles Schwab Corp. chopped fees by as much as 59 percent on its ETFs - with some being offered at a mere 7 cents for each $100 invested.
On average, Vanguard's ETFs cost 17 cents for every $100 invested, with the cheapest ETF costing 5 cents for $100 invested.
Buckley, who was on Harvard University's premier rowing team all four years, welcomes the competition and has no intention of giving up ground over prices.
"If you undercut us today, be prepared to do it again tomorrow," he said. "We won't just lower costs on one or two funds, we will do it across the board."
Since most of Vanguard's funds track indexes, having an investing expert as chief investment officer may not be necessary. What's more, Buckley's razor sharp focus on the bottom line may be exactly what Vanguard needs right now, Phillips said.
Buckley, who has held a variety of roles at Vanguard - including chief information officer and head of the retail group - will be fighting the market share battle while also trying to maintain Vanguard's no-frills culture. It's something firm founder Jack Bogle worries could be impeded by Vanguard's growth and size.
"With bigness you can get bureaucracy and complacency," said Bogle, emphasizing the importance of Vanguard remaining "a place where judgment has a fighting chance against process." Bogle, who retired from Vanguard in 1996, continues to give speeches and write books emphasizing the importance of long-term investing and sharing his views about the state of the mutual fund industry.
During his senior year at Harvard, Buckley, who majored in economics, considered pursuing a career in medicine like his mother, a nurse, and his father, who headed the cardiac surgical unit at Massachusetts General Hospital.
But then he met Bogle, and he realized he could go into finance and serve a purpose. As CEO Bogle's assistant, Buckley handled a number of projects, including helping Bogle research his first book. Buckley returned to Harvard for an M.B.A., but came back to Vanguard after graduation.
His next job was to help create a competitive analysis for Vanguard, detailing - and tracking - the firm's main rivals. That project gave Buckley perspective on how industry players compete and what gave Vanguard's model as a mutual company an advantage, he said.
Vanguard is owned by its customers, with profits invested back into the business. That makes it nearly impossible for publicly-traded competitors who answer to shareholders to compete on cost, experts said.
Vanguard is trying to maintain its pricing edge while also growing around the world. Over the past five years, the firm has gone from 12,000 employees in just six offices to 13,500 employees in 15 offices worldwide.
Since June, Buckley, who gets up every morning at 5 a.m. to ride a few miles on his bike before work, has been traveling to Vanguard's offices around the world to observe traders and managers at work so that he could find ways to increase efficiency.
He has identified that in certain regions the real-time systems Vanguard used to get cash flow into the funds are not necessarily being used in all of Vanguard's international locations.
Vanguard is in the middle of an effort to standardize its investment management IT across the globe.
Buckley's other priorities center around developing the firm's managers and establishing global best practices around that process.
Buckley's previous experience as chief information officer and head of Vanguard's information and technology division will help a lot in combating inefficiencies that crop up in global organization, said Gus Sauter, who Buckley is replacing as chief investment officer.
"My strength was more on growing the business and his strengths are more on managing a business," said Sauter, who is retiring after 25 years.
In some ways, Buckley's biggest challenge is to make sure he doesn't mess up a good thing, said Dan Wiener, who runs a newsletter for Vanguard investors.
"The biggest mistake they could make is to try to change anything," he said.
(Reporting By Jessica Toonkel; Editing by Jennifer Merritt, Lauren Young, Martin Howell, Bernard Orr)