Vanguard announced plans to restructure the advisor responsible for managing its mutual funds and exchange-traded funds. It will form two new advisors, Vanguard Capital Management and Vanguard Portfolio Management, and split its funds across the two. Historically, all funds have been managed by a single advisor: The Vanguard Group.
The table below outlines the funds that each advisor will manage. The full list is available from Vanguard. Vanguard Capital Management will manage all of Vanguard’s fixed-income and passive multi-asset funds, while Vanguard Portfolio Management will oversee its actively managed stock and multi-asset funds. Each advisor will take responsibility for a portion of Vanguard’s index-tracking stock funds.
There are two big reasons Vanguard likely chose to do this. Its representatives cited the growth of its funds over the past several years. Their mammoth size now requires more focus than a single team could handle. That’s certainly true. Big funds, whether actively managed or index-tracking, often require more attention. Vanguard offers some of the largest, and it has grown its personnel alongside its funds. Vanguard Total Stock Market Index VTSAX and Vanguard 500 Index VFIAX both have more than $1 trillion invested in them, and it has many others with billions.
The size of Vanguard’s funds points to another potential reason: The Vanguard Group owns a large chunk of all publicly traded stocks. In some instances, the ownership stakes are so large that they exceed the limits imposed by certain regulatory agencies. That risk isn’t unique to Vanguard, but it means some of its index-tracking stock funds may have to cap their stakes in some stocks, and they may not track their target index as accurately as they had in the past. Likewise, it may restrict an active manager’s ability to express their best ideas.
Vanguard acknowledged that risk in its funds’ prospectuses for the first time last year. So far, it has navigated those ownership limits by striking agreements with various regulators. Those agreements typically limit Vanguard’s engagement activities with the corresponding companies and allow its funds to maintain their large ownership stakes.
Splitting its funds across two advisors may alleviate some, though not all, of the related risks. Such measures aren’t unprecedented. Large asset managers like Capital Group and T. Rowe Price have already adopted similar multiadvisor structures for similar reasons.
Vanguard splitting its funds across two advisors shouldn’t change the investment experience for its clients, and it doesn’t impact the investor-friendly mutual ownership structure that distinguishes Vanguard’s funds. The advisors will have their own managers and stewardship teams. In theory, that allows the advisors to take their own approaches to managing their index-tracking stock funds. In practice, the two advisors are still part of Vanguard, so the tools, processes, and culture should remain the same. Vanguard’s clients should continue to receive the same tight index-tracking that Vanguard has provided in the past.
Correction: The author stated in a previous version of this article that the ownership stakes roll up to the advisors, but not all regulators view firmwide stock ownership from that perspective.