Vanguard's Bogle Wishes for More Competition in Index Investing
In less than a decade, Vanguard and BlackRock, Inc. (BLK) could control a combined $20 trillion in investment assets under management, but that doesn't mean the father of the index fund Jack Bogle is happy being alone at the top.
In fact, it is the lack of competition in the indexing investment market that worries him since it lowers the amount of choice investors have. "I wish there were more competition, to be honest with you," Bogle said in an interview with Bloomberg Television this week. "State Street is trying, but for some reason the numbers would suggest they're not succeeding very well. So what used to be an oligopoly, really of the three of us – Vanguard, BlackRock and State Street dominating the index field – is pretty much becoming a duopoly."
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Based on Bloomberg's calculations, Vanguard, which has $4.7 trillion in assets, will see that number grow to $10 trillion by 2023. Meanwhile, BlackRock, which has around $6 trillion in assets under management, will hit the $10 trillion mark by 2025. Bloomberg based its forecast on the most recent five-year average annual growth in assets at both firms. However, the financial media company cautioned that the gains are due in part to a long-running bull market in stocks that has increased the amount of assets under management. The asset managers may not continue to grow at the same rate if the equity markets pull back next year or in the years to come.
While a combined $20 trillion in assets is awe inspiring, it could also change the asset management industry, with the two firms holding big positions in some of the largest U.S. companies, giving them a lot of say on the direction of corporate America. It may also raise concerns that too much money is being held by too few firms. Bloomberg pointed out that, along with State Street, BlackRock and Vanguard hold significant stakes in the largest publicly traded companies in the U.S.
Bogle told Bloomberg there is no guarantee that Vanguard and BlackRock will match Bloomberg's calculation given a ton of different factors that can hurt growth. But still, he did say that Bloomberg's growth projections underscore the lack of competition in the marketplace. "I was never in this business to build a colossus, but as I have told people many times, I was too stupid to realize if we gave investors the best deal they would ever get, I'd be building a colossus," Bogle said. "And so here we are, on the way to a 25 percent market share of mutual fund assets – something that no one has ever achieved."
The 88-year-old executive said he would welcome more competition in index investing but noted that it's a tough business to compete in given the low-cost nature of it. "I say come on in, the water's fine," he said.