Commanding the 13,500-member crew is Bill McNabb, chief executive of one of the world’s largest, most influential financial services companies, with $2 trillion under management and 25 million investor accounts.
Because of its size, Vanguard’s influence on everything from equity markets to corporations to regulation extends far beyond the Mid-Atlantic. You wouldn’t know it from the mild, unassuming McNabb, who loves the liberal arts, takes commercial flights and relaxes by competing in endurance races.
The 55-year-old has enjoyed a meteoric rise since he joined Vanguard in June 1986. He became vice president of marketing services in 1989, assumed responsibility for all institutional sales activity in 1991 and became head of Vanguard’s Institutional Investor Group in 1995. Now, he’s only the third chief executive in Vanguard’s history, after founder John C. Bogle and Jack Brennan.
This transcript of our hour-long conversation was edited for length and clarity.
If a deep European recession develops, what will that mean for U.S. stocks and/or banks?
Europe is in a recession. And if it deepens, the biggest thing is it’s hard to predict what the impact in equity markets is going to be in the short run. The only thing you can expect with any certainty is the volatility is going to continue.
I think the most important element in our markets over the next few years is controlling, in a sense, what we can control in U.S. markets. And that would be the debt-deficit situation. If the U.S. has a credible plan to get its fiscal house in order — by the way, it doesn’t have to happen overnight, either. We don’t have to go to a balanced budget tomorrow. But if there’s a plan that people can extrapolate and say we’re on a good path there, it will remove so much of the uncertainty from the market.
And, very importantly, will give us the greater ability to withstand other exogenous shocks, whether from Europe or China or whatever. We can’t control Europe. We can’t control the Chinese economy. But we can control our fiscal situation.
So are you bullish on the economy?
I am neutral on the U.S. in the short run until this issue gets resolved. I am actually very bullish over the long run.
Ours is still is the most vibrant economy in the world. If you look, one of the best correlations to GDP growth is growth of the employee base. And over the next 20 years at our employee base, the number of working people will actually grow more here than anywhere in the developed world, with the exception of India. Despite the K-through-12 issues on education, we still have the best university system in the world.
And we still have the most powerful military. Again, these are real macro factors. But if you look at 200 years of history, sea power — the correlation between who controls the seas has a huge impact on economic growth and prosperity. Because when you think about it, still 94 percent of all trade occurs over the oceans. So us having the most credible navy is a positive factor.