- Vanguard's actively managed bond fund offerings are growing as the firm looks to take on traditional players in the active fixed-income fund arena like PIMCO and BlackRock.
- The asset manager has made at least four external hires in this space in recent years, including a former Goldman Sachs partner who is now global head of rates within Vanguard's fixed-income group.
- Business Insider is running down who Vanguard has brought on to help with this growth, which the Wall Street Journal first reported.
- "That's been an area where we've seen a lot of demand for active [mananagement]," one analyst said.
- Visit Business Insider's homepage for more stories.
Asset-management giant Vanguard has long been associated with low-cost, plain-vanilla index funds that its founder, the late investor John Bogle, invented in Valley Forge, Pennsylvania, 45 years ago.
But the rise of money manager competitors like BlackRock, the world's largest, have challenged Vanguard's decades-long grip on cheap fund offerings for everyday and institutional investors. Low expenses for funds, which the privately held firm helped pioneer, are now customary.
So it's bulking up elsewhere. The firm said earlier this year it was pushing into private equity, for instance.
It's also in recent years been growing its menu of active fixed-income funds, an area enjoying solid growth as investors have flocked to bonds during this year's volatility and US interest rates plumb historic lows. Actively managed US fixed-income funds have some $3.8 trillion in assets through June 30, while passive fixed-income funds have some $1.7 trillion in assets through the same period, according to Morningstar data.
That's up from $3.5 trillion and $1.4 trillion, respectively, from a year earlier.
Vanguard's actively-managed bond funds together rose past $500 billion for the first time in June, the Wall Street Journal first reported this week, suggesting the growth could pose a threat to rival asset managers like BlackRock and PIMCO that have long maintained a foothold in the bond market.
It's also made a number of outside hires in recent years, bringing in talent from the likes of State Street Global Advisors and Goldman Sachs to widen its presence in this space.
Those are just a few of the employees contributing to the active bond fund management push, and there are many other portfolio managers, strategists, analysts, and others within the fixed-income unit. The global fixed-income team has more than 180 investment professionals and oversees some $1.8 trillion in assets across both active and passive funds, a spokesperson said.
Vanguard has been managing active bond funds for more than four decades, a company spokesperson said.
"A decade ago, we started investing more heavily in active fixed income, and within the last five years, we've really stepped up our efforts," she said.
BlackRock and PIMCO spokespeople declined to comment.
Read more: The US government has pitched a policy that would allow private equity into your retirement fund. BlackRock is salivating at the possibility — here's how the $7 trillion manager would benefit.
"That's been an area where we've seen a lot of demand for active [mananagement]," said Brendan Powers, an associate director of product development at Cerulli Associates, the Boston-based industry research firm.
Within fixed income, securities can be less homogeneous than equities, Powers noted; a share of Microsoft is a share of Microsoft, but bonds from different issuers can vary significantly.
As with any type of vehicle, there could be downsides for investors. In a low-rate environment, some asset managers have been dipping into lower credit quality to generate greater yield, Powers said of the industry broadly. That could generate more income, but can carry more risk.
"That could be a trade-off," he said.
For Vanguard's part, actively managed bond funds grew by $27 billion in the first half of 2020 to $506 billion, according to the Wall Street Journal's report, citing a company spokesperson. BlackRock's quarterly earnings report published earlier this month showed some $950 billion in active bond fund assets through June 30.
Below, Business Insider has detailed the outside talent Vanguard has taken on in recent years — two professionals last year, one employee in 2017, and one in 2013 — to help steer the investment firm's active bond fund push under John Hollyer, the global head of fixed income.
Role: Senior strategist in Vanguard's fixed-income group with a focus on global macro, rates, and foreign currency
Joined Vanguard: July 2017
Formerly: Macro strategist and senior managing director for Guggenheim Partners Investment Management
Mathias oversees Vanguard's analysis of interest rates, currency valuations, economic developments, and political risks for the firm's actively managed fixed-income funds, according to her biography with the Fixed Income Leaders Summit.
When Mathias left Guggenheim in 2017, the Financial Times reported that she was one of at least 10 senior employees who left within the prior 15 months amid a "power struggle" at the top of the investment bank and asset manager that affected morale.
In 2017, a Guggenheim spokesperson denied to the newspaper that there was tension between the firm's founder, Mark Walter, and its widely followed investment chief Scott Minerd.
Through her time at Vanguard, Mathias has had to navigate a unique global fixed-income landscape, and a historic one in the US.
The Federal Reserve in March slashed its already low benchmark interest rate twice, to near-zero, to alleviate the coronavirus pandemic's devastating effect on the economy.
"We're in the middle of a huge storm," she told Bloomberg TV in a June 15 interview, likening equities to being in a small boat bouncing around with strong winds, and fixed income to a cruiseliner that may be traveling slowly, but more smoothly.
Role: Co-head of investment-grade credit and senior portfolio manager
Joined Vanguard: February 2019
Formerly: Head of investment-grade credit and senior portfolio manager at State Street Global Advisors
Narayanan oversees all active investment-grade corporate credit portfolios.
While he was with State Street, another behemoth in the asset management universe, he was responsible for managing investment-grade credit portfolios for active total-return and liability-driven investment strategies.
Before State Street, he spent 12 years with GE Asset Management, which State Street acquired in 2016. He was a senior vice president and portfolio manager for investment-grade credit there, and also held roles at GE including head trader for fixed income and portfolio manager-structured products.
In November 2019, Narayanan was added as a co-portfolio manager of Vanguard's global credit bond fund and its short-term investment-grade fund.
Like other portfolio managers, he has dealt with a volatile environment this year.
"We've seen pretty meaningful outflows from corporate-bond funds and as people look to raise liquidity, they tend to sell from the front end," Narayanan told the Wall Street Journal in March.
He'd been taking advantage of atypical conditions to buy short-term corporate bonds cheaply, the outlet reported.
Role: Principal and global head of rates in Vanguard's fixed-income group
Joined Vanguard: October 2019
Formerly: Partner in Goldman Sachs' securities division focused on mortgage structured products
Devereux spent more than 20 years at Goldman Sachs in mortgage-backed securities and structured product trading and sales.
In 2014, she was one of 11 women at the firm who were named partner in a class of 78 employees, and is among dozens of partners who have left since David Solomon was named chief executive in 2018.
At Vanguard, Devereux succeeded Ron Reardon, who retired after 18 years with the firm.
Earlier in her career, Devereux worked at HSBC in risk management advisory and interest rate derivatives structuring.
Role: Senior portfolio manager and co-head of the emerging markets and sovereign debt team
Joined Vanguard: 2013
Formerly: Portfolio manager focused on emerging-market debt at BlackRock
Shaykevich is the lead manager of Vanguard's $669 million emerging markets bond fund, and oversees the emerging-market portions of other bond funds at the firm.
He heads up a seven-member emerging-markets-specific team, according to a July 22 interview with Barron's.
With his focus, Shaykevich has had to contend with macroeconomic dynamics that hit emerging markets particularly hard, like the oil market's severe volatility this year.
"Our portfolio construction approach doesn't silo out risk to Asia, Europe, or Latin America, but helps us build a portfolio that maximizes [performance] without creating inadvertent exposures to risk factors that can blow up a fund in a period of volatility," he told Barron's.
Shaykevich started his career as a risk manager at BlackRock in 2001, where he helped structure hedge fund portfolios, according to Barron's.
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