Vanguard Group

The Vanguard Group is an American investment company.

Ownership structure

For 2023, The Vanguard Group, Inc. owns its funds and ETFs registered in the United States and Canada. These funds, in turn, are owned by private investors who own shares in them.

This structure of mutual ownership allows you to unite the interests of large investment funds into a single management system, not falling under the restrictions of antimonopoly services and not attracting the attention of the general public.

The management company does not belong to specific individuals or legal entities, which makes it practically invulnerable against claims, wrote Rybar.

Since the owners of Vanguard are more than 400 funds, any claim that can be brought by Vanguard must be submitted to all 400 legal entities registered in different jurisdictions. And since 20 million investors own shares in these funds, which theoretically bear subsidiary responsibility, this makes any appeal to the court in any jurisdiction futile.

And the investor, even if he is from a troubled jurisdiction, has the opportunity through an offshore trust to acquire a stake in an ETF issued by Vanguard, which in turn owns a stake in Vanguard. The chain of ownership was originally built in such a way as to ensure sufficient anonymity of the ultimate beneficiaries.

The most important point is the opacity of the ownership structure. Vanguard belongs to its own funds. And fund investors are primarily other large investment funds - BlackRock and State Street, large banks, such as JP Morgan and Merrill Lynch, as well as "blind trusts" and offshore companies that are not transparent to some jurisdictions.

Among Vanguard's clients are not only pension funds, but also significant funds from the'dark side of the market' whose owners prefer to remain unknown. Due to the ownership structure, Vanguard is not public. It is not traded on the stock exchange, and it does not need to go through the listing procedure. But a stake in it can be purchased through the acquisition of the relevant ETFs. For Vanguard itself, the financial reporting requirements are not as stringent as for listed companies.

Aktivs

Assets managed by Vanguard worldwide for 2023 amount to more than $8 trillion USD. For Vanguard customers, 191 funds USA in and 224 funds outside the United States are available, including 39 exchange traded (ETF) and four funds through Canadian subsidiary Vanguard Investments Canada. Vanguard serves more than 20 million investors worldwide directly, through consultants and through the companies' retirement plans.

In 2023, Vanguard holds stakes in 4,582 companies. Most valuable assets:

• Apple ($196 billion),
• Microsoft ($168 billion),
• Alphabet ($87 billion),
• Amazon ($70 billion),
• Nvidia ($45 billion),
• Tesla ($44 billion),
• ExxonMobil ($43 billion),
• Berkshire Hathaway ($43 billion).

In most cases, the stake is 3-5-7% of the free float. This looks completely harmless and does not raise questions from financial regulators.

For Vanguard, there is no need to inject its people into company boards. It's redundant. You can own a stake sufficient for the board of directors of any company to listen to the opinion of the management of Vanguard. The leadership of BlackRock and State Street acts in a similar way.

History

2024: $13 billion AI rollout for fund management

In early February 2024, it became known that one of the world's largest investment companies, Vanguard Group, is introducing artificial intelligence technologies to manage several shareholder funds with a total capital of $13 billion. It is assumed that neural networks will help to adapt faster and more efficiently to changing economic and market conditions.

According to Bloomberg, Vanguard began using AI tools in 2023 amid the skyrocketing popularity of ChatGPT and other chatbots. Vanguard has implemented AI tools in several factor funds: in them, stocks have any specific growth factor. Intelligent algorithms for analyzing big data allow, among other things, to make more accurate forecasts. The idea is that AI, compared to traditional methods, is able to better identify nonlinear relationships between multiple variables.

Pexels

Given the large number of factors that can affect stocks, these systems naturally lend themselves to machine learning, "said Scott Rodemer, head of investment at Vanguard.

AI tools have been introduced into the $7.8 billion Vanguard Strategic Equity Fund, the $1.5 billion Vanguard Strategic Small-Cap Equity Fund, the $491 million Vanguard Market Neutral Fund, etc. It is noted that all of them show good results. So, the first two exceeded their basic indicators and most of their analogues in 2023. The Vanguard Market Neutral Fund, in turn, brought in 12% of profits and also surpassed similar products.

Vanguard began experimenting with AI in 2018, using appropriate algorithms to process the text. After that, the company moved on to exploring how AI could be used in its strategies. Vanguard CEO Tim Buckley notes that generative artificial intelligence will revolutionize asset management.^[1]

2015: Share of 8.4% in Xerox

By November 2015, Vanguard Group owns an 8.4% stake in Xerox, the highest among shareholders.

2014: $3trn asset management

As of September 2014, manages assets in the amount of $3 trillion.

1975: John Bogle establishes company with revolutionary ownership structure

The ownership structure that formed the basis for the creation of Vanguard made it possible to remove conflicts of interest between investors and the management of the management company. Usually the funds of investment funds are managed by individual companies. Fund investors, taking on the risks of investing, expect certain actions from the management company. And managers of a management company often proceed from their interests, which regularly leads to conflicts. In the classic version, customer funds and the structure that manages them are always two different companies.

Vanguard was founded in 1975 on a simple but revolutionary idea: a company that manages customer funds should be owned by customers. Only such a formula guarantees that there is no conflict of interest. The ideologist of this approach was John Bogle. He previously ran the Wellington Management Company LLP. Bogle understood very well the essence of the conflict of interests of investors in the fund and the management of the management company.

For example, there are enterprises that provide accounting services. It maintains the accounting department of several small firms. Moreover, each company owns a stake in this enterprise. Accordingly, the management of the accounting company is directly interested in doing everything clearly and competently, since its clients are both its employers. It turns out an interdependent structure that is not formally a single legal entity, but all its elements act in concert in the common interests. Neither firm is interested in filing a lawsuit against the accounting enterprise under any circumstances, since owning a stake in it involves subsidiary liability in the lawsuit.

John Bogle suggested that his management create a fundamentally new management company that the fund itself would own. So that the structure managing the fund's money is not divorced from the investors of the fund itself. At that time, it was a pattern break, but it was this approach that proved to be effective.

Notes