Vanguard may look at private investments

Vanguard could look at providing products that invest in the increasing number of private companies, the index funds management giant’s global CEO has told a Sydney function.

Vanguard global chief executive Salim Ramji.

US index funds management giant Vanguard could look at providing products that invest in the increasing number of private companies, its global CEO, Salim Ramji, has told a function in Sydney.

Mr Ramji said regulators such as the Australian Securities & Investments Commission and investors were “right to be worried” about the fact that many larger companies around the world were choosing not to be listed on a stock exchange.

He said Vanguard, which now manages $16 trillion, with most of its products being indexed funds, was looking at the implications of the growing number of big companies in the US now in private hands, with a potential for it to move into the market if it could find the right products.

“There are now something like 90 per cent of companies in the US which have more than $US50m in revenue,” he told a lunch organised by the American Chamber of Commerce. “It has expanded significantly over the past decade.”

He said he believed that exposure to private equity and private credit now “has a role” in diversified investment portfolios, saying: “I’m not sure that we would have come to that conclusion 20 or 25 years ago, but when market structures change, we will change our mind.”

He said Vanguard had been approached about offering investment products in the private market in the past, but so far had not found the right model that would allow Vanguard to offer low-fee products.

He said it was Vanguard’s practice as it moved into new products to look at partnering with external managers such as Wellington in Boston. “We have 25 different active equity managers that are in Vanguard funds,” he said.

“We negotiate really low fees and pass them onto our clients.

“Can we bring that kind of low-cost, simplicity ethos in private markets? Maybe not today, but over the next five years, I think there are partnerships to be forged in ways that can help give individuals or financial ­advisers access to this type of investing, but hopefully at a low fee.”

The former head of iShares with BlackRock, Mr Ramji was speaking during his first visit to Australia as Vanguard chief executive after taking the reins of the global funds management giant in July last year.

The company manages more than $130bn in Australia, including $3bn in its superannuation products that it launched just over two years ago.

Mr Ramji said Vanguard believed the fees charged by fund managers around the world, including those in Australia, were too high.

His comments about private markets come a week after ASIC chair Joe Longo expressed his concern about the declining number of companies on the ASX and the increasing role of private capital in the economy.

ASIC has called for comments on the reasons for the declining number of companies being listed on the ASX and the potential regulatory implications of the rise in private investments.

Mr Ramji said the US sharemarket could face volatility and uncertainty over the next few years as it digested the implications of a transition period that could be “super messy” as the world reacted to changes such as President Don­ald Trump’s introduction of tariffs.

But he said, over the long term, there were good reasons for the argument about “US exceptionalism” and the US market would still be a good place to invest given its culture of corporate innovation, particularly in technology.

He said the current uncertainty in markets was happening in response to long term structural changes inherent in Mr Trump’s approach to trade.

“It’s about a re-establishing of equilibrium, at least between the US and its major trading partners around the world in the near term,” he said.

“It’s super messy, but over the medium term, if these arrangements can be negotiated and done, at least it will provide certainty.”

He said the Trump administration was paying close attention to the sharemarkets as well as the 10-year bond rate.

He said there were reasons for the argument about US exceptionalism which made the country good for long-term investing.

“You can look at things like artificial intelligence and the degree of innovation which has happened in the US the past couple of years,” he said.

“But when you look at the growth of technology (in the US) it has really been over a much longer period of time.”

He said companies such as Microsoft, which was founded 50 years ago, were an example of “constant reinvention” across the US.

“There is a vibrancy to the system which exists in the US which I haven’t seen anywhere else,” he said.

“In the near term, you can look at equity market valuations (in the US market) which are stretched.

“But if you have a long time horizon of 10 or 20 years, the US market is a fabulous market.”

Originally published as Vanguard may look at private investments