Acquired
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.
01:06:10 · Ben Gilbert, David Rosenthal
[01:06:10] S0: Yeah. Ish. Yeah. [01:06:11] S1: Yeah. Ish. And John turns to him and says, if you do that, you will destroy this entire industry. Now, of course, what's fascinating is that, you know, Capital Group and active management today has kinda never been better. Capital Group manages 3,000,000,000,000 in assets. [01:06:29] S0: You can see why they had the fear, which is if you provide this existence proof that you can run this business at cost and you don't need to pay huge sums of money to the people managing this, then our customers will demand the same from us, which is sort of right because you can buy an S and P 500 index fund from basically anyone today at basically no cost, but also sort of wrong because Capital Group, BlackRock, Fidelity, these are all giant profitable companies. And so I think the the interesting thing to sort of tease out across the rest of this episode is the competitors were probably right to be terrified of this sort of communist act where they took a crown jewel of capitalism and and communized it. But at the same time [01:07:14] S1: Kinda like the NFL, it ended up being great for everybody. [01:07:17] S0: Right. Right.
01:07:17 · Ben Gilbert, David Rosenthal
[01:07:17] S0: Right. Right. [01:07:18] S1: So yes. So Jack's starting down the path. The first thing that this new subsidiary company needs is a name. So right as this is happening, Jack gets a visit from an antiques dealer. Again, you can't make this stuff up, who offers him some prints of British naval ships from the Duke of Wellington era. The Duke of Wellington was the British prime minister and military leader for whom Walter Morgan had named the Wellington firm. Jack is looking to the prince, and one of them is of a ship, the HMS Vanguard, which was the flagship in the naval battle of the Nile where the British forces defeated Napoleon and ensured British independence and the state of Europe for centuries to come. And so on the spot, he decides Vanguard is the name, which is hilarious because Vanguard is a great name. It is steadfast, trustworthy, everything we think of it today. [01:08:18] S0: Short, memorable, unique.