Acquired
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.
01:08:18 · Ben Gilbert, David Rosenthal
[01:08:18] S0: Short, memorable, unique. [01:08:19] S1: Memorable. It's also, you know, it's the Vanguard. It's the leader. It's a pioneer. It's leading a revolution. But knowing all the history now, like, obviously, Jack chose the name because it represented total victory and, like, complete annihilation of the other side. Yes. So funny. Not at all how people think of the brand today. So in September 1974, the Vanguard Group files for incorporation, commencing operations, and taking over the back office of the Wellington Fund and the other funds that Wellington managed. Exciting. Nobody cared. All of the great fear that, you know, John Lovelace at Capital Group and Forbes and everybody else in the industry had about this is gonna destroy everything. This is gonna burn the industry to the ground. [01:09:14] S0: Well, because it didn't actually get mutualized. [01:09:16] S1: Yeah. Nobody cares. [01:09:17] S0: If any venture capitalists are out there listening or private equity guys or if you're in the investment management business, okay, you switch back offices. This happens all the time. This happens every five years. This has no bearing on your peers in the industry. What would have a lot of bearing is if you said, oh, all of my fees and all of my sort of performance compensation, that we're just gonna take down to at cost. That would be significant, but that is not what this is. No. It was not.
01:09:17 · Ben Gilbert, David Rosenthal
[01:09:17] S0: If any venture capitalists are out there listening or private equity guys or if you're in the investment management business, okay, you switch back offices. This happens all the time. This happens every five years. This has no bearing on your peers in the industry. What would have a lot of bearing is if you said, oh, all of my fees and all of my sort of performance compensation, that we're just gonna take down to at cost. That would be significant, but that is not what this is. No. It was not. [01:09:44] S1: And it turned out that Jack would need to lead another second and totally separate revolution as well before anyone would pay attention to what he was doing. A revolution not in the legal structure of funds, but in the very nature of the investment product that they offered. [01:10:05] S0: But, David, I thought he was barred from doing that. [01:10:07] S1: Well, if you're not offering any investment advice at all [01:10:14] S0: Perhaps you still could be in the business of deciding what to invest in if you're not actually doing any deciding. [01:10:21] S1: Yes. And that second revolution would be the index fund. Yep. But before we tell that story, now is a great time to thank our longtime friend of the show, ServiceNow. [01:10:34] S0: Yes. It is. Listeners, if you are running a large enterprise, then AI agents are likely spread across every single team, and deploying them is actually not the hard part anymore.