For many active stock pickers, low-cost investing pioneer Vanguard Group Inc. has come to epitomize the biggest threat to their business since mutual funds were first started almost a century ago.
But some 3,300 miles away from Vanguard’s headquarters in Pennsylvania, a Scottish money manager that’s been around since 1908 is taking a lesson from the U.S. behemoth to survive as a standalone firm.
Baillie Gifford & Co., which oversees about $202 billion out of Edinburgh, has been cutting fees to remain competitive in a low-return environment, a strategy that takes a page from Vanguard’s. While peers such as cross-town rival Standard Life Investments Ltd. are turning to mergers and acquisitions to weather the assault from index funds, this firm is betting that performance is still key to attracting clients including Vanguard, for which it oversees more than $20 billion.
“We’ve learned quite a lot from Vanguard,” said Charles Plowden, joint senior partner at Baillie Gifford who’s been with the asset manager for more than three decades. Cutting fees “is one part of our defense of active management. We’re not going to be able to beat them on costs, and we are not going to try, but it’s about performance after costs.”
Plowden, together with two other Baillie Gifford fund managers, runs about a third of the $5.1 billion Vanguard Global Equity Fund, which invests in stocks including some of world’s largest technology companies. The fund is beating 87 percent of peers over the past five years. Its expense ratio — the total cost of managing a fund — was 58 percent below the average of similar money pools as of January, according to Vanguard.
That success is also a model for Baillie Gifford. The firm has cut overall fees on some funds and introduced a two-tiered system on others that lowers charges above a certain threshold for assets under management. For the Scottish Mortgage Investment Trust, the fee falls to 25 basis points from 30 basis points for assets above 4 billion pounds ($5.2 billion).
Vanguard last week named Tim Buckley as chief executive…