BOSTON (Reuters) - Vanguard Group Inc’s vast scale helps it promote efficient markets, its new chief executive said on Friday, pushing back on concerns the growth of passive index funds could reduce the pressure on corporate executives to perform.
“We want everyone competing. We don’t want one industry winning out over another industry,” said Tim Buckley, who took over as CEO of the world’s biggest mutual fund manager on Jan. 1.
“We need the ultimate in capitalism, that’s what we need. That’s what makes indexing tick,” Buckley said in a telephone interview, one of his first as head of the Malvern, Pennsylvania firm where he previously was chief investment officer.
When his watch as CIO began at the start of 2013 Vanguard’s total assets stood at $2.2 trillion. At Dec. 31 it had nearly $5 trillion, a scale that has helped it cut fees.
But the increased assets have also raised fears Vanguard is altering some of the basic dynamics of investing, because the firm and other passive fund managers cannot sell stocks to punish corporate managers. Their ultimate impact is a major uncertainty for the investment industry, said Morningstar analyst Kevin McDevitt.
“It’s an open question how will this all work out,” he said
Market structure is just one issue for Buckley, 48, who takes over a workforce of 16,600. He joined Vanguard in 1991 and earned degrees at Harvard University where his rowing coach assigned hard workouts of uncertain duration. “You never knew when the pain was going to end,” he said.
Buckley said the experience taught him to stay focused during choppy events - including market volatility. “You just have got to keep bearing down and keep going,” he said.
He also wants to harness technology through products such as Vanguard Personal Advisor Services, a combination of automated investment tools and direct human input.
At a typical cost of 30 basis points, it is cheap enough to attract Vanguard customers who previously used a do-it-yourself approach, Buckley said.
Buckley also said the company will look to grow in foreign markets like China, where it has about two dozen employees including at a new office in Shanghai. Unlike other western companies in China it controls all its own business, giving it time to decide matters like when it might introduce a retail product.
China is a “a very long opportunity for us,” he said.
Reporting by Ross Kerber; Editing by Lisa Shumaker