Vanguard CEO F. William McNabb To Step Down -- Update

By Sarah Krouse Features Dow Jones Newswires

F. William McNabb III plans to step down as chief executive of Vanguard Group after leading the indexing pioneer through a decade when it emerged as the world's second-largest money manager.

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His replacement starting in January will be Mortimer J. "Tim" Buckley, 48 years old, who is currently Vanguard's chief investment officer.

Mr. McNabb, 60, and Mr. Buckley are longtime insiders at Vanguard, a suburban Philadelphia firm that launched the first index mutual fund for individual investors 40 years ago.

Mr. Buckley started as an assistant to Vanguard founder Jack Bogle in 1991. Mr. McNabb began his career with Vanguard in 1986 and became CEO in 2008. Mr. McNabb will become chairman next year and eventually pass that role to Mr. Buckley as well.

Under Mr. McNabb, Vanguard transformed from a low-cost manager of $1.25 trillion in assets to one with $4.4 trillion in assets under management, trailing only BlackRock Inc. in total size. Vanguard has pulled in new assets at a record pace in recent years as investors lost faith in more traditional money managers who handpick stocks and bonds.

"My goal has always been to leave the woodpile higher than where I found it," Mr. McNabb said in an interview. "I think that's the right amount of time for someone to run an organization like Vanguard. It's complex, it's all consuming, and it's good to get fresh perspective, even with the kind of continuity we have here."

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Vanguard's dominance in the industry was perhaps most apparent last year as it attracted more new investor cash than all its rivals combined. During the first six months of this year, it pulled in roughly $214 billion in net new money.

Its clients now range from millions of mom and pop investors to some of the world's largest pension plans and sovereign-wealth funds alike. It is a sizable shareholder in a number of giant American corporations, giving it increasing power over the fates of chief executives, takeovers and other crucial boardroom decisions across the U.S.

Passive Vanguard mutual and exchange-traded funds owned 5% or more of shares in 485 companies in the S&P 500 at the end of March, up from 12 in 2008, according to a proprietary analysis of Morningstar Inc. and other data by The Wall Street Journal.

The new CEO isn't expected to take Vanguard in a new direction. But he will face a number of challenges as more rivals rush to match Vanguard in price, and stock pickers assert that passively managed shareholders like Vanguard have become too deferential to management.

Other tasks will be to expand overseas, attract more money to a relatively-new financial-advisory service and improve customer services amid the company's meteoric rise. Some customers have complained of longer than normal customer wait times as assets have swelled, and earlier this year the firm suffered a website outage that left many clients unable to log into their accounts for part of a trading day.

"It's an awesome responsibility," Mr. Buckley said of the new role.

Mr. Buckley said he has several months to shadow Mr. McNabb and noted he has worked closely with Mr. McNabb on firmwide plans including expansion overseas, growing its advice service and lowering investment costs.

One of Mr. McNabb's plans as chief executive was to continue to lower the costs of Vanguard funds. He started an internal campaign to reduce Vanguard's average asset-weighted fund fee to 0.10% by 2020. That figure stood at 0.12% at the end of 2016, a spokeswoman said.

Continually lowering fund costs for the firm required both continued asset gathering and controlling cost. Head count has fallen more than 10% during Mr. McNabb's tenure.

Mr. McNabb also halted plans to build a new campus for Vanguard on an old dairy farm because of cost concerns, and he revised Vanguard's strategy overseas, paring its network of offices and making the U.K. a bigger priority. Earlier this year, Vanguard began selling funds directly to investors there for the first time.

Mr. McNabb told Vanguard executives about the planned leadership changes Thursday afternoon in a building near the front gate of the firm's sprawling campus in Malvern, Pa. The meeting was held in the Majestic Building, which, like all of the buildings on Vanguard's campus, is named after a British battleship. That building is where Mr. McNabb typically holds his annual meetings with staff, referred to as crew.

After passing the chairman role to Mr. Buckley, Mr. McNabb says he plans to spend time with his family and on philanthropic work in addition to advising or teaching at universities he attended.

When asked in an interview if he would consider a role elsewhere in the money management industry, he said: "All my money is at Vanguard. It will always be at Vanguard."

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Tom McGinty

contributed to this article.

Write to Sarah Krouse at sarah.krouse@wsj.com

(END) Dow Jones Newswires

July 13, 2017 16:55 ET (20:55 GMT)