Gus sauter biography

People are looking for something to blame, and ETFs have been successful. Morningstar showed there is no market impact from leveraged ETFs. Leveraged strategies can be implemented in a number of ways. However, education is very important. There is more education now so they may realize that these are short-term trading vehicles. Sauter: The ETF share class helps preserve the integrity of the index funds.

ETFs were a way to provide a place for traders. We always try to screen short-term investors out of the mutual fund share classes. ETFs are another arrow in the quiver. ETFs are also a great way for us to work with the intermediary community. ETFs are an attractive vehicle for financial advisors. It opened up a new market to us.

The index funds already had critical mass in the portfolio. This makes the ETF easier to manage and the index funds have a long-term performance record. Sauter: I loved everything I was involved in here. Building an equity team here was the first thing I tackled. It was a tremendous amount of fun and things grew dramatically. The past decade has been building out the fixed-income side.

I like new challenges, so that afforded an opportunity. I also liked working with the SEC on initiatives and market structure changes. Selected edition. Sign in. My Portfolio News Latest. He next worked for the First National Bank of Boston. While studying at Chicago University, Sauter worked for a small real estate company, both in Chicago and Denver.

While employed with the real estate firm, Sauter put together a venture capital deal and formed a gold mine. Sauter began his career in investment management as a trust investment officer with First Bancorp of Ohio formerly The First National Bank of Ohio and joined Vanguard in He was hired two weeks before the October market crash. At Vanguard he was given the reins to a nascent Quantitative Equity group and was the head investment manager of the firm's equity index funds.

At the time, Vanguard's lone equity index fund and lone bond index fund held 1. Under Sauter's direction, Vanguard expanded its line-up of equity index funds. In addition, he helped develop new trading programs and strategies that minimized trading costs and enhanced benchmark tracking precision. The fact that there's more capital available or are able to go into that marketplace.

And then I think it's probably what Dr. Johnson, the lexicographer said. It's a triumph of hope over reason. He was talking about his second marriage, but I gus sauter biography the same applies in investing. People hear these great stories about performance in private equity. And so they want in, but it's like hedge funds in the s. So you sit on some investment committees, which sounds like a very, very cool retirement project, if I can call it that.

I listened to you on another podcast talking about it. It sounds amazing. Based on that experience, how are institutional investors looking at private equity? How are they thinking about it? They're all thinking about it. If there of any size at "gus sauter biography," they're trying to participate. Every committee I'm on I was on seven. I'm on six now, and winding it down a little bit.

Everybody's involved in private equity and again, it's hope springs eternal. I've seen some great success with some of the investment committees I'm on. I've also seen some under performance as well. The ones that do well tend to be the investment committees that have a brand name and therefore, have the access to the great managers, but everybody wants into the private world based on Ontario Teachers, based on Yale, based on Harvard.

Everybody wants in. So they're looking at it on the basis of expecting higher than public equity returns? Is that. I've mentioned the argument for broader diversification. There is nobody investing in private equity because of broader diversification, even though they should be. Everybody expects higher returns. How do they respond to you being a skunk at a garden party saying, "Maybe you shouldn't be expecting that"?

And that's what active management is all about. Active management is as much about selling as it is performing. Every active manager I've ever talked to is going to outperform in the future despite the fact they never have in the past. But again, hope springs eternal, and I think that we believe, in the committees I'm on that, we do have access, for various reasons, to the best managers.

And to be quite honest, we don't always get it right. At Vanguard, we didn't always get it right with active managers, but we actually have won a lot more than we've lost. So I'm curious, Gus. When you join a new investment committee, what is the very first thing that you do? Well, personally, I have always asked people in the committee, "How do you measure yourself?

And I think it's really important because we could all do that. In minutes, we can set up that portfolio and it doesn't require a whole lot of monitoring and invariably, it's a very difficult portfolio to beat. And so after the fact, after my suggestion, every one of the investment committees I'm on have added that as a benchmark. They have other benchmarks they measure against, but I always say, "Well, what about the simplest one?

Not that they always are, but I find that having that simple benchmark is a really good guideline. And if we can beat that in these investment committees, we're doing pretty well. And so we have had some success. And how do those investment committees view low cost index investing? So the people on the investment committee are really savvy investors.

There aren't people who aren't professionals in the field of investing on the committee. So in the investment world, there is a lot of respect for indexing. So I would say that in all of the investment committees I'm on, there's a lot of respect for indexing. And in fact, every investment committee I'm on has some degree of commitment to index investing, some assets in index investing.

It's interesting and I mentioned that I managed quantitative equities. Indexing is passive quant. I also managed active quant, but commons thread. There are a lot of commonalities between indexing and active quant. And I'm in a group called the Chicago Quantitative Alliance, and these are all active quant managers across the country and even across the world.

What I find is virtually every single one of them has investments with Vanguard index funds. So there are tons and tons of active managers that can be managing their own portfolios, but have investments in index funds as well. So there is a lot of respect for indexing, certainly among the most sophisticated investors. Good to hear. What role do you see in portfolios for other alternatives like hedge funds or liquid alternatives?

Hedge funds were really a product of the 80s and 90s. And as I mentioned earlier, I think that there were greater marketing efficiencies back then than there are now. And so we heard of returns back in that era. There were just opportunities around. There was less capital chasing it, so the opportunities were greater. And I think that there's still this perception that that's what hedge funds will perform, that they're going to give you these super-sized returns.

Well, over the last 20 years, the markets have become more efficient. It's much more difficult to find great opportunities. There's a lot more capital, a lot more capital chasing hedge funds nowadays so that's going to drive market efficiencies. And so now, hedge funds returns are modest. So I've got to admit that I'm not a huge fan of gus sauter biography funds in particular.

There can be some that have outperformed. They typically aren't a true hedge fund. They're not frequently looking for a long position in an offsetting short position. They typically have some sort of market exposure as well, which wasn't always the case. So they're taking some active factor bets as well as really looking for long and short positions.

If you think, "Well, this is going to be a risky cash investment," you can be rewarded. And that's the the way I think of hedge funds nowadays is more of a risky cash investment. Other alternatives, so when I think of other alternatives, I'm thinking of investing in real estate or maybe infrastructure, those can have a real return to them.

Infrastructure can be somewhat bond-like, but maybe some equity kicker. If you're talking about, let's say a toll road, that'd be infrastructure that's sold off to the investing public. You think, "Well, people are going to pay the fees on the toll road," and that seems like a bond investment. But if traffic picks up over time and populations grow, that maybe there is a growth component to that as well.

So if it's priced appropriately, you can get a reasonable return in infrastructure. I would not expect equity-like returns out of infrastructure. Real estate goes through boom and bust periods. I actually was a commercial real estate developer back in to ' You can do well in real estate, but I think people tend to get a little overly enthusiastic about real estate at times.

And so it goes through boom and bust cycles, and we may be in a bust one now certainly for commercial real estate and probably retail real estate as well. But all of these, it's important to keep costs down. So infrastructure would be another type of private investment, and again, difficult to access as a retail investor. Real estate, lots of opportunities there, but not all real estate is the same.

There's residential, there's commercial, there's industrial. You want to know what you're investing in there. We're talking about a lot of different asset classes.

Gus sauter biography: Gus oversaw the management and growth

How important do you think the psychological benefits are of holding one single fund, like a target-date fund, for example, as an asset allocation tool? I think the big benefit of something like that is that you can't measure investments within your portfolio. So if you're not pursuing that type of approach, if instead you're picking five different equity funds and three different bond funds and maybe some other smatterings of things thrown in there, let's say you've got some real estate investment, well, there's a tendency for people to look at the performance of those investments.

It may be actually a reasonable portfolio that they've laid out, but there's a tendency to take a look at each one of the investments and say, "Oh. Well, that's done well gus sauter biography the last three years," or, "That's done poorly over the last three years. That's the advantage of not being able to see inside. Typically, the best investors are the ones that establish an appropriate asset allocation to begin with and then stick with it and don't tinker around too much.

By definition, if you've got a handful of equity investments, there will be some under performing. There's going to be some out performing the others. And just to assume that the under performers are bad over a certain time period, over, let's say a two year period or a three year period, may be wrong, but there's a strong desire to get rid of those at just the wrong time.

So I think the huge psychological advantage of a target-date fund is just saying, you don't have that opportunity to say, "Well, get me out of this portion of the portfolio. The one thing a lot of people are concerned about would be well, I've got all of my money with one fund and then they think, "Well, I should diversify. And there's sometimes some worry, well, should I have it all with one fund company?

It's important to understand that the fund itself is a separate company. So it is separate from the fund management company and it has its own assets. It directly owns those assets. So it's going to rely on the performance of the assets, not the performance of the fund company. If the fund company were to go out of business, and now I won't use Vanguard as an example, let's call it Acme fund company, they were to go out of business, it wouldn't matter to the portfolio.

The portfolio has its own board of directors. The board of directors would just have to find another fund company to manage the assets, but the assets would be fully intact. I'm so glad you brought that up. Those are all excellent points, and we hear that a lot. How impactful do you think direct indexing will be to the future of portfolio management?

Everything gets a little overdone in the world of investing, and every year, it gets a little bit more overdone. I think there's probably a role for direct indexing for a certain segment of investors, not a huge segment of investors, but a certain segment. It could be that if you're CEO of a major company, it could be that you've got a vast amount of your wealth tied up in that company, and therefore, in the industry that company is in.

And you may not want to put any more money into that company or industry. And so there, a direct index approach may be a good compliment to what you already have. Own everything else other than your company and the industry your company is in. And so that would be perhaps an appropriate approach for someone who has that exposure.

And another one might be someone who has a very specialized philosophy around social investing. And for some reason, they don't want one investment and all of the social investment funds out there that they might have an interest in, might just have that particular stock or bond. And there you could work around it and not have it in your portfolio.

Again, I think these are niche situations and may apply to a small group of people trying to either get better diversification or express some sort of social interest. But for the most part, most investors are still going to be well served by the traditional index approach. The social screen customization makes sense. We tried to think through the closely held stock scenario, but in a globally diversified portfolio, even if you own the largest company in the world, it's a pretty small portion of the portfolio.

And if you end up paying 40 basis points for a direct index, instead of five, I don't know. It could be, but let's say it's in the energy industry. So you also have broader exposure to the energy industry and you may not want to double down on that. That makes sense. Strip out the industry. What do you think the effect has been or will be of big asset managers like Vanguard, but also BlackRock and other competitors, what do you think the effect of their growth will be on corporate governance?

I'd love to answer that after I finish off with the former question that escaped me at the time. I'll come back to that, but when it comes down to this private indexing, you also have to be concerned about cash flow into your investment portfolio. Because if you don't have constant cash flow into your portfolio, you're going to end up with a lot of unrealized capital gains over time.

It may not impact you in the first two, three, four, five years, but after 10 years, most of the assets in your portfolio will be at a gain. And then any adjustments you have to make to that portfolio, all of a "gus sauter biography" going forward, it becomes a very, very tax inefficient portfolio, realizing capital gains and paying taxes all the time on those capital gains.

So you have to be cognizant of that. If you're 30 years old and you've got constant cash flow going in, let's say into your retirement portfolio, so you got 30 years of cash flow going in, maybe it can make some sense, but then again, remember when you're 70 years old and 10 years into retirement, all of a sudden, you've got a really bad tax situation going forward.

So regarding the big indexers owning a large portion of the marketplace between say the big three indexers, Vanguard, BlackRock and State Street, SSGA, they own probably a quarter of the US market or more than a quarter of the US market and a very, very significant portion of the world portfolio as well. A lot of people worry that that has a negative impact on corporate governance.

I personally think it has a positive impact on corporate governance. There's a lot of money spent by these three companies, doing a lot of analysis on corporate actions and voting proxies, much more analysis than the average investor would do or a small fund gus sauter biography might do. And so when it comes down to voting on proxies, I think there's a lot of thought going into creating the best value that they can because indexers are lifelong holders of stocks.

And active managers, we always felt active managers rent stocks. They own them for a year. That's the average holding period of an active holding, and then they move on. So they're really not going to have much of an impact from a corporate governance standpoint. Whereas an index portfolio, you're owning it for forever, and you're making decisions about how the governance of the company is responding in other aspects of the company.

And so it's very important that you take actions to maximize the performance of that company over time. I haven't gone out on BlackRock's website or on SSGA, but you can go out on Vanguards and they show an example of, I think, maybe different proxies that they have voted and they talk about why they voted one way or another.

Gus sauter biography: "Gus" Sauter is noted as the

They voted for a shareholder proposal or against a shareholder proposal. And I think a lot of times, people say, "Well, if you're not voting for shareholder proposals, you've got some negative ulterior motive. There are a lot of times when shareholder proposal just isn't appropriate. We felt, when I was at Vanguard, and I think the feeling is still the same that micromanaging the company is not the purview of investors.

That it doesn't seem like we should assume that as an investor, we know more about management of the company than the gus sauter biography does. So there can be instances where there's a shareholder proposal where they're proposing something that management is much better capable of addressing than we as investors would know. So as an investor, we would vote against that and defer to corporate management.

But there are other times, that you'll see, that Vanguard does endorse a shareholder proposal. And again, you can go out on Vanguard's website and just see different examples of ones they voted for or against. And so I think there's a lot of thought that goes into it, and I think corporate governance has improved because of those managers activities.

So as you look back, what do you consider to be the greatest success of Vanguard during your time there? I guess I'd say it was educating investors. I go back to 70s and 80s, investors really weren't very well educated. They didn't have a whole lot of information back then. The internet didn't exist or wasn't available to anybody outside of a few people.

We didn't have the flow of information that we have today. And there's no question investors are much more educated today than they were 40 years ago. I'm very proud of the role that Vanguard has played in that. Vanguard certainly has been in the lead of investing with low cost, preaching the value of low cost investing. Vanguard has always also been in the lead of saying, "Stay the course.

So we had a big effort of educating investors. I would say, quite honestly, that I think that Vanguard has some of the most educated investors in the world. And one of the reasons I would say that is I think you have to be somewhat of an educated investor to actually invest in an index fund. And somewhat counterintuitive, we would just naturally assume an active manager gets paid a lot of money, they should add value.

So the fact that Vanguard has attracted so many people into index funds, to me, says, well, these people are thinking outside of the box. They are getting the fact that active management's not going to always out perform. And so I think Vanguard investors are highly educated. They are very, very sticky. So you can imagine if we had I said, turnover rate.

I should have said redemption rate. So we had investors that had far longer time horizons. And again, I think that was the education of stay with your investment strategy and don't try to time markets and move here and there and everywhere. How big a deal in contributing to the success at Vanguard was the decision to implement ETFs?

Well, I'd gus sauter biography to say it was very important because I invented it. I think it enabled us to address a different marketplace. A lot of people think ETFs are a different investment. Back inpeople were saying, "This is a new novel investment. It's a new way to distribute an old investment. So over the markets, as opposed to directly distributed by the mutual fund company.

So you used to, with a traditional investment, you have to go to the mutual fund company. With an ETF, you can buy it through your broker on an exchange. And so it's just appealing to a different marketplace, and that opened up a whole new market for Vanguard. The advisor space really grew dramatically at Vanguard because of that. So I think it has been important to Vanguard's success over time.

It was slow going to begin with. Looking ahead from where you sit, you're doing the investment committees, but you're out of working at Vanguard so you're somewhat of an observer. What about investment management excites you most today? Well I guess there are two sides to the same coin that the good news is there are lots of opportunities for investors.

The bad news is there are lots of opportunities for investors. There, quite honestly, are just simply too many things. I'm thinking what's in this portfolio? It's band aids and stitches. So thankfully, that ETF did go under as it should have. And there are just too many things out there where it's spaghetti thrown against the wall and it's just a question of how long it sticks on a wall before it falls off.

So that, I get excited in a bad way about seeing the massive proliferation of things out there to the point where it really starts to confuse investors. And Vanguard's done a lot of work on that, that investors end up with gridlock when they have too many choices. And it's not only true in investing, but it's true in many aspects of our lives.

And so we gus sauter biography investors with thousands of choices, and how are they supposed to know what to do? I'm not entirely familiar with your retirement plans up there, but frequently, the plan sponsor will limit the number of options because there's been a ton of work showing that if you have too many options, people just go into gridlock.

They end up in a money market fund because they just don't know what else to do. So that worries me a little bit about the industry. Final question, Gus. How do you define success in your life? I was very fortunate to find a home at Vanguard. I worked at five other companies before I ended up at Vanguard, and the first week I was at Vanguard, I realized that was the company I wanted to work for for the rest of my career.

I absolutely love the culture of the company. It had a really strong corporate culture. Most of the companies that I had worked for didn't really have a corporate culture I could put my finger on, but Vanguard really was unique in that. We talked about the ownership structure, and it made us very much focused on the investors in the funds.

We only had one master to serve. We didn't have external investors that wanted us to generate a profit for Vanguard. We only had investors in our funds, and so we were fully devoted to making sure those investors in the funds were treated fairly and succeeded. And to me, I feel that was psychological payment for me, to know that we were doing really good things for investors.

And we had a program that we called our Swiss army that cropped up in when the markets were in turmoil. We called it our Swiss army and we would answer the phones from all different parts of the company. So I would answer the retail phones when people would call up nervous and out of control. And I was sitting there next to Jack Bogle one time. Jack was answering the phones.

And so you really got to see the fear of investors and the good news about investors as well, and really feeling that and feeling how we were impacting investors. I can't tell you how many investors would say, "I'm just so thankful for what you're doing for me. Well, Gus, this has been an incredible time. You've been a major part of such an incredible organization, and I'm so happy you could join us today.

Thanks so much. And Jack virtually kicked Nate out of his office. And Jack, again, kicked him out of his office. He felt that since they could be traded, they would be traded and they just turned people into market timers. And Jack really, really did not like ETFs. Well, Jack retired, but he stayed around Vanguard. He had office space at Vanguard doing his research, the Bogle Research Center, and Vanguard has several large campuses.

So Jack always went to Lake Placid for a month, the month of August every year. And he had had a house there. So he was away when it came out that we were actually working on ETFs. We had started working on it two years earlier, but we kept it very, very quiet.

Gus sauter biography: George U. “Gus” Sauter

Nobody in the world knew about it. Even Jack didn't know about it. So he came back from Lake Placid, and the way our cafeteria was set up, you could go in on the ground level, it was two levels. So you could enter the top level or the ground level. And I was coming across from across the courtyard at the ground level. And I went in there and the cafeteria was actually on the ground level, but there's a big, big foyer there.

And then you'd enter the other side, and Jack came in from the other side at just the same time. And there are always, at noon, there are 50 people at a minimum in the foyer itself going into the cafeteria. And Jack's at the top of the stairs, and I don't know if you've ever heard Jack speak, but he had an extraordinarily deep voice.

He was a double bass, and he was at the top of the stairs and he saw me at the bottom. And all of a sudden, I just heard this. Hey, Jack, welcome back. He softened up though with time, right? Well, yeah, kind of.