Christine Benz: Hi. I’m Christine Benz with Morningstar. My colleague Dan Lefkovitz and I interviewed Vanguard CEO Salim Ramji at the Morningstar Investment Conference in late June for an episode of our podcast, The Long View. Here’s an excerpt from that conversation.
Is Investing Becoming Too Complex?
Benz: So we want to switch over to discuss investing. And I wanted to get your perspective on whether the balance has shifted a little bit too much in the direction of complexity in investor portfolios. There’s been a big push to get smaller investors in private investments, whether private equity or credit. I’d like your take on complexity writ large but also specifically the private market’s exposure and how you see that fitting into investor portfolios, if you do.
Salim Ramji: Yeah, I mean, look, as a general matter, complexity for decades has really been a mask for charging higher fees. And I think part of what Vanguard’s been about has not just been about low fees, but simplicity. And I think that’s going to be a really important feature of Vanguard going forward as well around being able to keep things simple, to help clients invest for the first time, to help clients continue to invest in a good way for the long term.
There will be some segments of clients, perhaps at the very high-net-worth area, for whom some exposure to private markets could make sense. But for us, it still has to adhere to the Vanguard principles. It’s got to be good quality. It’s got to be at a low fee. And it’s got to be done in a way which is intelligible and simpler, if you will, than the client could otherwise get. And we’re starting to experiment, if you will, around could we provide access to private market investors to certain segments of clients that fit the profile? And we’ll see how we get in terms of that journey.
What we do know is that for the right clients, with the right product, at the right fee, it can be additive to the overall risk/return profile of their portfolio. But there’s a lot of work to make sure that those conditions are met. And so that’s an area that I’d say we’re experimenting and learning about.
But you asked the question, Christine, across the industry, I think it’s going to be some time, like a long time, longer than most people expect before this really goes mainstream in a big way. And I think a lot of it is not just the complexity and the fees, but just the complexity of consuming the product. Mutual fund is really easy to consume. Now, we’ve been at it for like 101 years. Right. And ETF is pretty easy to consume, but we’re now in our fourth decade of ETFs. And so some of the things that people look at, appropriately, as democratizing investing, like mutual funds and ETFs, these are decades in the making. And so, any new features, even good features, to be able to add often take longer than people expect. But that’s why we just wanted to start kind of looking and understanding it because, done well, I think it can be additive. But there’s a lot of work and thinking and research to satisfy the “done well” in the Vanguard way.
Why Vanguard Refused to Add Crypto ETFs to Its Platform
Dan Lefkovitz: Crypto is an area where, before your arrival, Vanguard kind of drew a line in the sand and refused to add cryptocurrency ETFs to the platform. I’m curious how what the decision-making framework is like, how you go about approaching a new sort of asset class or asset.
Ramji: Yeah, it was pretty straightforward. And, you know, Greg Davis, our CIO, and I had talked about it kind of early in my arrival. And at Vanguard, we like things that, we like investments that deliver cash flow or have the prospect of delivering cash flow. That could be cash, could be bonds, could be equities, could, over time, if the circumstances are right, be private markets. We don’t like things that don’t. We don’t have a gold ETF. We don’t have a silver ETF. And so it’s a logical extension then as to why we don’t have ETFs in other things that don’t either deliver cash flow or have the prospect of delivering cash flow. And that’s OK. The market’s well served. Investors can decide. But we also want to be clear about what our own investing philosophy and our own investing thinking is. And we’re OK not being everything to everybody. And there are certain things like either we don’t fit our investment philosophy or we don’t think we have particular scale or expertise in. And so that’s where I’d put some of those types of ETFs in that bucket.
