The More Things Change, the More They Stay the Same

The More Things Change, the More They Stay the Same

The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers.  I am sharing it here today because I thought it might be useful to some of you.


Vanguard Changes Everything and Nothing

The other day, Vanguard – the second-largest asset manager and the largest passive asset manager in the world – made a curious and somewhat surprising announcement.  The Malvern, Pennsylvania-based firm announced that it has hired a new Chief Executive Officer, the first Vanguard CEO not to work with or under founder Jack Bogle and the man who, interestingly enough, ran the passive side of the business for Vanguard’s “competitor,” the world’s largest asset management company:

Salim Ramji, who led BlackRock’s exchange-traded funds and index investing until earlier this year, will start as Vanguard’s chief executive in July, the company said late Tuesday. The Wall Street Journal reported earlier that Ramji’s appointment was imminent.

Ramji left BlackRock in January after about a decade. He said at the time that he planned to “seek a new leadership or entrepreneurial opportunity outside the firm.” He is credited with expanding BlackRock’s multitrillion-dollar iShares ETF business. In his final role, he oversaw two-thirds of BlackRock’s more than $10 trillion in assets under management….

Ramji joined BlackRock in 2014 to lead corporate strategy. The former McKinsey consultant had initially spurned the investing giant to explore the chance to run a smaller manager, Ramji said in a LinkedIn post about his departure this year.

The consensus among analysts and other observers appears to be that Ramji will fit well into the much-discussed unique culture at his new firm, while nevertheless moving it, slowly and incrementally, in the direction taken by others in the business over the last few years.  This is a reasonable assessment, but one that ignores some of the chief defining features of Ramji’s tenure, including his rather aggressive sense of conformity.

The first thing to note about Ramji is that he is ambitious.  He did not leave BlackRock in January because he wanted to relax or spend more time with his family.  He left specifically because he wanted a new opportunity, something bigger and more challenging than he would have been permitted at BlackRock.  In his final position at the firm, Ramji was in charge of the fastest-growing and most important part of its business.  That growth was, in large part, his doing, which is to say that he is exceptionally effective at expanding operations and quite knowledgeable about the ETF business.  That’s good news for Vanguard.

The second thing to note about Ramji is that he has, at least in his public comments, been very supportive of the BlackRock line on ESG.  He insists, for example, that ESG is not politicized and has nothing to do with “values.”  It is, rather, all about value, about taking the proper risk-management approach to long-term investing.  In a May 2022 letter to The Wall Street Journal, he put it this way:

Special interests may apply a political lens to our thousands of annual proxy votes. But we cast votes based only on the long-term economic interests of the millions of people whose money we manage. If our proxy-voting record exhibits a bias, it is toward greater disclosure, which we believe makes markets more efficient, which in turn benefits our clients.

To this end, Ramji played a significant role in creating BlackRock’s new “choice” system, which allows fund owners to specify how they would like their proxy votes cast.  He touts this constantly, insisting that it proves that BlackRock is interested only in doing what is best for its clients and what its clients want.

What all of this means is that the third thing we should know about Salim Ramji is that he is not willing to be honest about ESG.  Again, in his public comments at least, Ramji steers all discussion about ESG to proxy voting and away from engagement, which is arguably the more important component of ESG asset management.  In the end, proxy voting matters and it is important and it is the means by which smaller asset holders can express their frustration with and opposition to non-pecuniary investment considerations.  But it is NOT what corporate managers necessarily consider most significant and intimidating about BlackRock or its peers.  What is most significant and intimidating is the fact that the firm has $10 trillion under management and will use every bit of it to pressure corporate managers to do as they insist.  And Ramji will soon have more than $7 trillion of assets under his management to use as his own leverage.

All of this is good for BlackRock, for State Street, for Vanguard, and for other large asset managers but is terrible news for those who oppose ESG and favor free and fair capital markets.

Finally, a fourth thing to note about Ramji is that he is not just a “BlackRock man.” He is also a McKinsey man, which is important.  Among his clients as a consultant and senior partner at McKinsey were Larry Fink and BlackRock, who thought so highly of him that they wooed him quite aggressively, pursuing him even after he had turned down their offers to join the firm.  Interestingly, another of Ramji’s clients at McKinsey was BlackRock’s competitor, State Street, the CEO of which is a friend and admirer:

“He’s proved to be quite versatile and resilient at BlackRock . . . He’s got an incredibly high IQ and high EQ,” said State Street chief executive Ron O’Hanley, who was a consulting client of Ramji’s and has stayed in touch.

In other words, during the several years after the Great Financial Crisis, when the Big Three consolidated their positions as the Leviathans of the investment world, began pushing toward a majority passive asset environment, and also began moving in the direction of socially conscious investing, Salim Ramji was deeply involved in the entire process.  And now, he will become more deeply involved.  He was the lynchpin between BlackRock and State Street, as they moved from a competitive relationship to a more collusive one.  And now he will become the tie that binds the third of the Big Three to the other two.

This, again, is terrible news for those who wish to see capital markets liberated from the politicization of ESG.  It’s terrible news for small investors and asset managers as well.  It is also terrible news for those of us who see the consolidation of the financial services business in such a few hands to be an enormous mistake and a tragedy in the offing.  Indeed, the only people for whom this is NOT bad news are those who seek to bring down ESG by demonstrating that its practitioners form an unlawful cartel.  Their job has probably been made that much easier.

Vanguard’s new CEO will bring change to the vaunted passive investment firm.  It is likely, however, that he will bring “more of the same” to the passive investment business and the financial services industry more generally.

Stephen Soukup
Stephen Soukup
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Steve Soukup is the Vice President and Publisher of The Political Forum, an “independent research provider” that delivers research and consulting services to the institutional investment community, with an emphasis on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.