How accurate are you in these daily reports?
We would consider that sensitive industry data. We have converted a lot of those percentage accuracy numbers for a lot of different processes, including the NAV process, into Six Sigma numbers. Our pricing accuracy is in the range of 4.7 Sigma to 5.1 Sigma.
Why have you stayed with Vanguard for 20 years?
At Price Waterhouse, half of my time was spent auditing mutual funds, including Vanguard, which was one of our largest clients. It’s a very dynamic atmosphere. What’s going on in the market directly affects what we do. We have a lot of interesting, three-way relationships with a lot of companies — they’re either a client of ours, we manage money for them; or they’re a vendor of ours, they provide banking services to us or computer services to us, so they’re a vendor/partner; or we could own anywhere from 3% to 10% of their stock. You could pick up The Wall Street Journal and see probably 20 articles that impact us with respect to any one of those three types of relationships.
How has your business changed during the time you’ve been in this role?
The basics of what we do has not changed. What has happened is we have gotten a lot bigger. Vanguard has gone from being a sort of niche player since my Price Waterhouse days to an industry leader. Also, some of the instruments the funds own have become more complex. It’s been a challenge to keep up with some of the securities and derivatives and investments that Wall Street invents that our funds buy. The challenge has been how to find and develop people to handle [new instruments] and to keep up with the technology.
How has your job been affected by the financial crisis?
One of the biggest parts of the markets that have been affected may be Treasury money market funds. FFS has spent a lot of time helping the client-facing people and some of the strategy people around what we should do with our Treasury money market funds given what’s going on in the Treasury markets and the yields on the funds having reached zero.
Last week we announced that we’re going to merge two of our funds to help stabilize the yields. That’s an example of how our group can add value because of the knowledge we have and how that manifests itself into the books of the funds, the NAVs, the yields, and the distributions. We’ve spent more time on those kinds of activities.
Of course, something like Lehman Brothers can happen. They were a counterparty to a number of different types of transactions we had, and we had to unwind a lot of those things last fall. We had previously done risk assessments on what would happen if one of our counterparties went bankrupt in the night. We were collateralized, and although it was a lot of work [to unwind], we came out without any losses.