On this day, September 24, 1974, John C. Bogle incorporated the Vanguard Group of Investment Companies to administer and be owned by the Vanguard family of mutual funds. A lot has changed since then, as I wrote to you the following last month:
Big Swing: WVB (Wellington Vanguard Blackstone) All Markets
By Bos Amico @ Adobe Stock
OK, I don’t really like writing this about my concerns with the Vanguard Group and Wellington Management, but with both firms teaming up with private equity behemoth Blackstone, I have plenty of concerns:
At Vanguard, you have BlackRock alum Salim Ramji running the ship, and at Wellington Management, you have a fairly new leader in Jean Hynes. “After winning the CEO job in 2021,” writes Forbes, “Hynes got some advice from health care chiefs she knew. Merck’s Ken Frazier (now retired) told her that of all the decisions he made daily as CEO, only four really mattered. The lesson: Get the big swings right.”
Really? Get the big swings right? Is that how you want your money to be thought of as a big swing? What if she swings and misses? And what if she hits a home run? Who wins? The investor paying higher fees gobbled up by private equities’ high costs? Plenty of questions will be answered in the months and years ahead. But what does this mean for investors in Vanguard’s Wellington and Wellesley funds that are run by Wellington Management?
Wellington Management has been around forever, running the Wellington Balanced fund since 1929. Jack Bogle worked there for 23 years before starting The Vanguard Group in 1975, the consequence of a boardroom fight, his firing, and an agreement that Wellington Management would run the investment management side of the business, and he would run the distribution side.
This from Forbes: “Bogle told Forbes in 2017thathe launched low-cost index funds and direct-to-consumer sales in part because it allowed him to do an end run around Wellington by claiming there was no money management or distribution involved.”
Fast forward, and today you have a BlackRock alum running Vanguard, Hynes at Wellington Management, and both making a big swing teaming up with Blackstone by offering the WVB All Markets Fund, “a closed-end ‘interval fund’—meaning it will offer quarterly redemptions to investors for liquidity and could be the centerpiece of a diversified portfolio. Public stocks (from Vanguard funds and direct Wellington investments) will be 40% to 60% of assets; bonds (through actively managed Vanguard funds) will be 15% to 30%; and private Blackstone funds will make up 25% to 40%. Wellington will determine exactly how assets are allocated,” writes Forbes.
Action Line: What are the chances management determines that they like higher fees and can stuff existing balanced funds like the Wellington and Wellesley funds with private equity? Stay tuned and spread the word. When you want to talk about a balanced investing approach, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
P.S. There are some conflicting ideas about when Vanguard began, was it September 24, 1974, or May 1, 1975? In a letter for Vanguard’s 40th birthday, Bogle himself explained the nuances, writing:
Vanguard’s Birthday Of course Vanguard’s birthday marks the day that our firm was born. We were incorporated on September 24, 1974. Yes, some regard May 1, 1975, as our birthday, and indeed that date marked some sort of anniversary for us. It was on that date that we “began operations,” a formulation that has often described what supposedly happened on that “May Day” in 1975.
Even I had used that formulation. But as I look back, I was clearly wrong. Our operations did not begin on May 1, 1975. As I wrote in a memorandum to our crew dated September 12, 1974, “the establishment of our new . . . organization will become effective on September 16, 1974.” From that date forward—even before our “Vanguard” name was chosen—our staff would provide all administrative, financial, and record-keeping services to the Funds. The Vanguard board of directors was meeting regularly; and we were also overseeing the investment and distribution services provided by Wellington Management Company.
What did happen on May 1, 1975? Mostly technicalities. After the approval by fund shareholders, the original management contract with Wellington was terminated, and new contracts with lower fees went into effect. With a portion of those savings, The Vanguard Group assumed the expenses of operating the Vanguard funds, and continued to do the job the staff had been doing over the previous eight months.
So, yes, something happened on May Day 1975. But it was hardly the birthday of this then-tiny, shrinking, and profoundly challenged new enterprise. The birthday of the firm would, finally, take the investment world by storm was September 24, 1974, the date of our incorporation. By 2005, that little newborn child had become a giant, the largest firm in the entire mutual fund industry.
