Asset Management: Vanguard does the unthinkable

One thing to start: The Chinese owner of Inter Milan is racing to refinance an almost €400mn loan by this week, as Pimco and Oaktree Capital battle for influence over the future of the newly crowned Italian football champions.

And a big interview: Jeremy Hunt has said the UK can create a $1tn homegrown tech giant to rival Microsoft or Google as he shrugged off foreign bids for London-listed companies as “part of how capitalism works”.

In today’s newsletter:

• Vanguard taps arch rival BlackRock for new CEO

• Calpers’s targets private markets for green investments

• Borrowing conditions improve for US companies

Salim Ramji: the first outsider to lead Vanguard

Vanguard remains so closely identified with its founder Jack Bogle, that five years after his death, its diehard fans still call themselves Bogleheads. 

This is one of the dynamics that its newly named chief executive Salim Ramji must navigate. Ramji, who joins in July months after leaving BlackRock, is only the fifth chief executive in Vanguard’s almost 50-year history. He is both the first outsider to lead the $9.3tn asset manager — and the first one not to have worked for Buckley.

A former lawyer at Clifford Chance and senior partner at consultant McKinsey, where he ran its asset and wealth management practice, Ramji then spent a decade at BlackRock. He most recently headed its iShares ETF and index business, and was among a handful of executives cited as potential successors to BlackRock chief executive Larry Fink.

Bogle’s insight was that on average, stockpickers make average returns. He left an unassailable legacy as the pioneer and leading advocate of passive investing, and launched the first-ever index fund for ordinary investors. 

While Pennsylvania-based Vanguard remains a dominant player in US mutual funds and exchange traded funds, it has struggled to grow internationally, lagging behind $10.5tn arch rival BlackRock. And its customers and counterparties routinely complain about its clunky technology.

Ramji takes the reins at an asset manager that has drawn criticism from progressive activists for failing to join net zero climate initiatives and for its outsized influence in US stock markets. Because of the sheer size of its index funds, Vanguard is the largest shareholder in many American companies.

As head of iShares, Ramji helped build a product-launching machine that churned out a wide range of ETFs, including its wildly successful spot bitcoin ETF, which is closing in on the crown of running the world’s largest bitcoin fund, hot on the heels of market leader Grayscale. 

Ramji has already said that a bitcoin ETF is not on the cards at Vanguard. But he has big plans to extend its reach well beyond the 50mn people it serves, and is seeking to expand its higher-margin advisory offerings. 

“I really do believe that there can be millions more people who can benefit from what Vanguard has to offer,” Ramji told my New York-based colleagues Brooke Masters and Will Schmitt. “Part of the opportunity over the next five years, 10 years and beyond is to scale that capability. Even with 50mn [customers], there are millions and millions more, even in this country [the US].”

Calpers to direct $25bn to green private market investments

Last November Calpers, the biggest public pension plan in the US, committed an extra $53bn to an expanded low carbon assets portfolio. The new goal would take the total portfolio to $100bn by 2030, or more than double the initial $47bn in funds.

Now my colleagues Josephine Cumbo and Attracta Mooney bring you details of how it plans to spend the allocation. It will pour more than $25bn into green-related private market investments, in one of the largest commitments by a major fund to unlisted climate assets. 

Calpers is examining the private equity, real estate and infrastructure markets, particularly in Asia and Europe, as it looks to deploy the capital over the next six years. 

“Those are the ones [private market assets] that have very evident climate investment opportunities,” said Peter Cashion, Calpers’ managing investment director, sustainable investments. “We’re expecting [private markets will] represent more than half of the $53bn. It’s pretty significant.” 

The allocation will propel the $483bn fund to become one of the world’s largest investors in so-called climate solutions, in spite of the political pushback against environmental, social and governance-based investing in the US. 

“The reason we have conviction around it, we’re really doing this [is] to generate alpha and outperformance, because we see the investment opportunity set from this really fundamental change in the economy,” said Cashion. “At the same time, it’ll have a side benefit of having a portfolio that has a lower carbon intensity.” 

California is distinct for having set out a framework aimed at using the state’s big public pension plans, including Calpers, to drive investments in sustainable technologies and other green assets. 

Calpers’ green investment push comes as the issue of how to pay for a shift to a cleaner economy dominates global discussions about climate change. Read the full story here and don’t miss Attracta’s recent Big Read on the $9tn question: how to pay for the green transition

Chart of the week

Surging share prices and falling borrowing premiums are making it easier for companies to access fresh cash, as an index of US financial conditions returns to levels last seen before the Federal Reserve started raising interest rates more than two years ago.

The Chicago Fed’s National Financial Conditions index — which measures how easy it is for companies to borrow money — this month reached its loosest level since January 2022, write Harriet Clarfelt and Kate Duguid in New York.

The reading comes even though the Fed has yet to start lowering rates, which have sat in a range of 5.25 to 5.5 per cent for the past 10 months, their highest level in 23 years.

The index — in which lower numbers indicate loose conditions — has fallen as rising markets help mitigate the pressures of high rates on corporate America.

At the beginning of the Fed’s tightening cycle in March 2022 “there was an expectation that these higher interest rates would have more of an impact in general on the economy,” said Wylie Tollette, chief investment officer at Franklin Templeton Investment Solutions.

But now it has become clear that the effects would be “very selective” and felt by companies with lower credit quality and higher debt levels, rather than “broad based”, he added.

Five unmissable stories this week

Ray Dalio, the billionaire founder of $112.5bn hedge fund Bridgewater Associates, has warned that the US government’s rising debt levels could hit Treasury bonds, arguing that investors should move some of their money to foreign markets.

Investors placed a record £300mn bet against BT. Chief executive Allison Kirkby hit back at them, saying “I always love to squeeze the shorts . . . and prove them wrong” as she laid out her plans to turn around the UK telecoms group, sending shares soaring.  

The Ontario Municipal Employees Retirement System, Thames Water’s biggest shareholder, has written off its investment in the utility in a sign of the escalating financial crisis at the UK’s largest water company.

Starwood Real Estate Investment Trust (Sreit), one of the largest unlisted property funds, is running low on liquidity as investors demand their money back, threatening a reckoning for a sector rocked by rising debt costs and fears over real estate valuations. 

UPS has hired Goldman Sachs Asset Management to provide Outsourced Chief Investment Officer services for the transportation company’s US and Canadian pension plans. The $43.4bn mandate cements GSAM as the largest OCIO manager in the US.

And finally

A new retrospective at the Design Museum in Kensington showcases the groundbreaking work of Enzo Mari, the late anti-consumerist who once likened Italian design to pornography. He was “the designer who hated the design industry,” writes our architecture and design critic Edwin Heathcote.