New Vanguard CIO Tim Buckley is no Gus Sauter, but then Gus Sauter is no Tim Buckley either.
Tim Buckley started his career at Vanguard as founder and chairman John Bogle’s research assistant, so perhaps his appointment to succeed Gus Sauter as the company’s chief investment officer on Jan. 1 should come as no surprise. Buckley is infused with the gracious "put-the-client-first" ethos that Bogle pioneered and, as important, seems to embrace Bogle’s “costs matter hypothesis” with every cell in his body.
While Buckley is quick to point out he will never quite fill Sauter’s shoes, who retires as CIO at the end of the year as one of the giants of the world of indexing, make no mistake: Vanguard is as ready for a CIO like Buckley as Buckley is ready to be CIO. In fact, Buckley is the only executive at Vanguard who will have served as CIO twice—first as chief information officer since 2006 and now as chief investment officer.
It’s a quirky biographical detail, but also a measure of how involved Buckley has been in Vanguard’s steady rise to the top of the money-management and indexing industry and how germane his broad skill set is to Vanguard’s future. When he arrived in 1991, Vanguard had $60 billion in assets under management and indexing made up 2 percent of all invested assets. It now has $2.3 trillion in assets and indexing makes up 20 percent of all assets, and more than half of Vanguard’s. In short, indexing is blossoming, and it’s hardly a stretch to suggest that Buckley—an unequivocal believer that the ETF has an exceedingly bright future—will be a perfect CIO to lead the company that led the passive revolution.
IndexUniverse: Let's start with the question that was last on our list: How do you think you will be different than Gus in this chief investment officer role?
Tim Buckley: Well, let’s start off with Gus. He’s a legend. I would argue that he’s the architect of indexing as we know it today, he is the guy that’s taken it mainstream—everything from the importance of costs, the importance of transaction costs, index construction, to how indexes should be used in somebody’s portfolio or in target date funds. You name it. So, Gus is a legend, so I won't even pretend to walk in his shoes.
My aim is to continue his success. What I can tell you is that we are very similar in terms of purpose, of putting the investor first. We get excited about people saving for their retirement; about giving them a better shot of doing that; and about helping people who are looking to put their kids through college. We can help them get there. We have the same investment philosophy, and we have the same appreciation for talent. Where we are different, it would be complementary.
IU: From what we hear, Gus is more of a number cruncher in a portfolio management kind of way whereas you are a number cruncher in more of that MBA/business enterprise kind of way. Do you agree with that general observation?
Buckley: Gus has incredible technical knowledge—the depth of his technical knowledge will never cease to amaze anybody here. Fortunately, he has passed that onto his team. So he has a great appreciation for micro-market structure, for transaction costs, and even for rebalancing a portfolio. That has been passed onto the team that he has built.
Leave it to me to now bring a strong client perspective to the team. I’ve been in this business for 21 years—involved in the investment side, but also very involved on the client side. I can bring that client perspective to what we do, as well as how to harness the power of the team that he has created. And there are a lot of things that we want to do to continue this success, as we build out further infrastructure—whether they're systems, or it’s standardization of process—to make sure that, as we go global, we’re all using the same best practices.
IU: How do you think Vanguard has changed in the last 10 to 20 years?
Buckley: You're talking about a firm that was about $60 billion when I joined in 1991, and now it is $2 trillion dollars. And today, our costs are about 60 percent lower for investors than they were in 1991! The services have also changed over the years. You can go Vanguard.com and you see a fabulous website to interact with your portfolio and self-provision. That didn’t exist 20 years ago; it was a 1-800 number. Our growth in the advisor business has also changed whom we serve—we can access a lot more investors and really help advisors serve those investors. And we are looking at expanding internationally. So, the company has changed immensely.
Productwise, target date funds were a huge change for us. Indexing was always core to who we are, and ETFs have been a big revolution in that sense. ETFs, for us, are just another way to index.