Acquired
00:58:53 · David Rosenthal, Ben Gilbert
[00:58:53] S1: Yep. But here's the thing. Jack does have a very good point, especially to the directors of the fund whose fiduciary duty is to do what's in the best interest of the fund holders. What he's proposing is pretty obviously in the best interest of the fund holders. [00:59:10] S0: Right. He's making the pitch to sort of a non conflicted group. The the board of the funds theoretically is only looking after the investors in the funds and not the shareholders of the management company. Indeed. [00:59:24] S1: So the fund board says, like, okay. We need a pause. We need a recess. We need a little more time for the dust to settle and figure out what to do here. Let's take a month, and, Jack, we will direct you, since you wanna do this, to go prepare a study, a feasibility study of, like, what are the available options to us as the fund and the board of the funds? [00:59:48] S0: Because you're kinda just proposing the nuclear one here. Can we get the whole gradient? [00:59:51] S1: Give us the full gradient. [00:59:52] S0: Because it is kinda nice relying on Wellington. I mean, they've built out a lot of infrastructure here on the management company for us to do what we do. I'd it'd be a little bit nuts to just say, sorry. We're starting something new from Whole Class. [01:00:05] S1: From scratch. So Jack goes away, prepares a 250 page report. [01:00:10] S0: Of course. [01:00:11] S1: It's like he's back in his carol at Firestone, you know, library writing his senior thesis again.
01:00:11 · David Rosenthal, Ben Gilbert
[01:00:11] S1: It's like he's back in his carol at Firestone, you know, library writing his senior thesis again. [01:00:17] S0: And it's full of data. I mean, he has really, really done the research, done the math. He is making a extremely well formed pitch here. [01:00:26] S1: Yep. So the thesis statement of this report that he presents to the board the next month in February reads, quote, the present structure has been the accepted norm for the mutual fund industry for fifty years. The issue we face is whether a structure so traditional, so long accepted, so satisfactory for an infant industry as it grew during a time of less stringent ethical and legal standards is really the optimum structure for these times and for the future and for the Wellington Group of Investment Companies, or rather should the funds see greater control over their own destiny? And, obviously, Jack's answer to the question is yes. [01:01:07] S0: I mean, fire and brimstone. He's got a preacher in
01:01:07 · Ben Gilbert, David Rosenthal
[01:01:07] S0: I mean, fire and brimstone. He's got a preacher in [01:01:10] S1: him. He's he's motivated. He is motivated here. And he actually has a telling quote in his memoir that I think speaks to his mindset at the time. He says, yes, mutualization of of the fund and fund's activities was totally my idea, And I realized that a mutual company would never provide me with the personal fortune that so many denizens of Wall Street would earn, but it offered, I believe, my last best chance to resume my career. Obviously, it's both here. Jack is idealistic, and this is his chance to save his career. This is his opportunity of last resort. Yes. Ultimately, the fun board comes back and does vote with Jack barely. Infantissimally barely. [01:02:04] S0: They they carve out a small job for him to do Yes. But not the the whole thing that he had asked for. [01:02:10] S1: Yes. They say, okay. You can remain chairman of the funds, and we will endorse some very, very small degree of separation from Wellington Management Company, but not everything and not to start. We will empower you to go form a new subsidiary company of the funds collectively owned by the funds and thus the clients in the funds, and we will authorize that company to take over fund administration only. So not investment management, not marketing and distribution, those will remain with Wellington management company, but we will run a little experiment, all the back office, tax, accounting, legal, fund holder registers, etcetera.
01:02:10 · David Rosenthal, Ben Gilbert
[01:02:10] S1: Yes. They say, okay. You can remain chairman of the funds, and we will endorse some very, very small degree of separation from Wellington Management Company, but not everything and not to start. We will empower you to go form a new subsidiary company of the funds collectively owned by the funds and thus the clients in the funds, and we will authorize that company to take over fund administration only. So not investment management, not marketing and distribution, those will remain with Wellington management company, but we will run a little experiment, all the back office, tax, accounting, legal, fund holder registers, etcetera. [01:03:00] S0: Which is Jack's least favorite thing to do. Yeah. I mean, which is everyone's least favorite thing to do. The the the fun stuff is picking what to invest in and seeing if you can then go out and, you know, sell clients and bring in new money. Traditionally, it's fun to be the stock picker or it's fun to be the salesperson. It's not fun to be the person making sure the accounting checks out. [01:03:22] S1: Yep. And, indeed, most management companies outsource this. They don't do it themselves. [01:03:26] S0: Yep. And, technically, he was explicitly precluded from offering investment advisory services. [01:03:34] S1: To the funds. Yes. To the funds. Yes. [01:03:36] S0: Store that away, listeners. Keep that in mind. And Jack logs the win. He's like, cool. I got something. [01:03:41] S1: Yep. Yeah. So, I mean, hey. Look. It was either his career is over, and he's, you know, out on the street proverbially.
01:03:41 · David Rosenthal, Ben Gilbert
[01:03:41] S1: Yep. Yeah. So, I mean, hey. Look. It was either his career is over, and he's, you know, out on the street proverbially. [01:03:48] S0: Although wealthy. I mean, he's he's, like, medium wealthy by this point. He's had a twenty year career during a great era running a finance company when the finance company had pretty fat profits. So he's made, I don't know, I'm gonna guess $5,000,000, and he wasn't a big spender. So doing pretty well.
01:04:06 · David Rosenthal
[01:04:06] S1: Yeah. Depends how much salary and draw he was taking from the management company. But, of course, he's gonna take this opportunity. Whatever I can get. So he's like, great. Let's do it. He writes in his memoirs, I knew a rough road lay ahead. For my goal ultimately was to build a broad based firm. In other words, take over everything. Fully cut Wellington out. And I took on my new leadership role in the same way I had left my previous leadership role, fired with enthusiasm. Boy. Fired with great fire and brimstone would be a better way to put it. Yes. So once the fund board votes for this, other people in the industry hear about it, of course. And Wellington, even though they're much smaller now, is still a widely known, well respected, big firm in the industry. The reaction is severe. So Forbes Magazine runs a piece about all of this infighting happening at Wellington with the headline borrowing from the famous curse from Romeo and Juliet of a plague on both houses, they declare. Like, these guys, they're ruining it for everybody. Jack tells an anecdote at the beginning of of the books, Stay the Course, which is his memoirs, that around this time, he travels out to Los Angeles when while he's there, he gets an urgent message from the head of Capital Group out there, a big active fund manager in Los Angeles, John Lovelace Junior, the head of Capital Group, says he needs to meet with Jack privately. Jack's like, well, my schedule's pretty booked. I got a lot going on here right now. I'm flying out of LAX tomorrow. The only time I could do would be, like, a 6AM breakfast at LAX tomorrow before my flight home to Philadelphia. Lovelace is like, okay. Fine. I'm there. Jack shows up. Lovelace is already sitting down. He's like stone cold. And he says, I hear you're planning to mutualize the Wellington fund. And Jack says, yes, John. That's right. In fact, I got the votes. We're we're starting the process.