F. William McNabb III has had an eventful time since he became president and chief executive of
The Vanguard Group Inc. in August 2008. Just days after he started, news of the collapse of Lehman Brothers Holdings Inc. rocked the markets, rattling advisers and investors.
If any period of time has proved harder for the “think long-term” and “stay the course” messages that have been Vanguard's hallmark, it has been the past few years, he said. “I kept talking about the importance of a long-term perspective, but all the time, you do have this soundtrack going on in your brain saying, "Wow — the world is changing right before us.'”
Mr. McNabb, 53, recently talked about how the firm got through the market meltdown and what he sees for the future of Vanguard.
Q. During the credit crisis, what was the most challenging aspect of running Vanguard?
A. The temptation to react quickly to all of it was great. But we decided not to do any reductions of our employee base, and we kept investing in the business. The single-most-difficult decision we made was in the beginning of 2009, when we told investors that it was likely our expense ratios would go up around 2 basis points. We felt that reducing staff to cut expenses was a dumb thing to do strategically, and not the right thing to do, and secondly, we felt we had to continue to invest in our business, whether it was in technology or educational programs. By not cutting our investment in the business, I think, we were better-prepared when things turned. And now, expense ratios are dropped down to where they were.
Q. Which of the fund regulations being considered worries you most?
A. One is the potential regulation of derivatives. You can't manage risk without derivatives. But if credit default swaps were centrally cleared, similar to future contracts, you may have had different outcomes during the credit crisis. Also, Basel III could change the supply of short-term investments, which would change the nature of short-term-bond funds and money market funds. That's not to say there isn't a real need for the rethinking of capital and liquidity in the banking system, but we need to look at what the consequences of that are.
Q. Where do you see opportunities for growth for Vanguard?
A. The exchange-traded-fund world is going to continue to expand and I think that's an area where we have opportunities. I expect our non-U.S. business to be bigger in the next five years.
Q. Where would you like to be?
A. I would like to get to Hong Kong and Canada next year. We looked at Canada a number of times over the years, and each time, we came up with a reason that we didn't want to do that. Now I look at that and scratch my head a bit.
Q. What were the reasons?
A. It was an opportunity-cost argument. The U.S market is so big and still so fragmented that just having a little bit more success here is important to our shareholder base. It takes longer to get that from Canada. It felt like if we had limited resources, let's go after where we had the best chance and easiest opportunities.
E-mail Jessica Toonkel at [email protected].
