Tom Rampulla, head of Vanguard’s UK operation, spoke to Paul Amery, editor of www.indexuniverse.eu, about his firm’s expansion plans, in an interview conducted earlier this week.

IU.eu: Tom, most European readers will be familiar with Vanguard as one of the world’s largest fund managers and as the pioneer of index investing. But fewer, perhaps, will be familiar with your ownership structure. Could you elaborate?

Rampulla: In the US, the Vanguard group is owned by the investors in our mutual funds, collectively and more or less proportionately to the size of each fund. The group then provides services to the funds. This helps us operate very efficiently, and any profit is returned to fund shareholders, effectively driving costs down. This also helps us avoid the potential conflict of interest between customers – the investors in the funds – and the shareholders in the management company. The structure allows us to plan very long-term, as we’re not under pressure, as a publicly-quoted company would be, to match or exceed Wall Street’s quarterly return targets.

The non-US businesses of Vanguard are not owned by their mutual fund shareholders – it’s more complicated to do this from a regulatory standpoint, but it’s something we would like to explore in the future. So as of now the Vanguard group owns the UK subsidiary. But the Vanguard Investments UK fund shareholders still benefit greatly from the mutual structure, as we manage the business in exactly the same way.

IU.eu: We reported last week on your current index fund launch. Why have you decided to start with index funds, rather than ETFs, since in the US you run both?

Rampulla: As you may know, in the US our exchange-traded funds are actually structured as share classes of our mutual funds. We decided to file for index funds here, as we wanted to start with the basic building blocks of a fund business, and then decide later what is the most appropriate legal structure to use, whether that is a UCITS, a local ETF, a combination of both, or a share class of an OEIC (open-ended investment company), assuming that we can do one of those here.

IU.eu: I noticed that you’ve chosen to start your fund range with a mixture of Irish-domiciled UCITS and UK OEICS – what was the thinking there?

Rampulla: We wanted to bring to market for UK investors, since all the funds are designed for them, the best products available. We looked at things like tax efficiency and how best to track the relevant index at low cost. There was also the question of scale, since we already had a Dublin-based UCITS range in place, and in some cases it was most efficient to utilise the funds available there.

IU.eu: What are your plans for expanding into other parts of Europe?

Rampulla: We are following a two-pronged approach for business expansion outside the US. We want to build a global institutional funds business, which we are doing right now across Europe, and in certain countries, where we feel the market is big enough to be meaningful for us – we already manage US$1.1 trillion, worldwide – we are pursuing a deeper and broader strategy, with more investment products designed for the local market. In these countries we also look at whether we feel we have a competitive advantage, whether we can differentiate ourselves, and whether we feel we have expertise to bring. The two countries where we are currently pursuing such a strategy are the UK and Australia, though we are looking at other places as well.

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