The World's Largest Fund Firm Is Worth Just $250MM. Wait, What?
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Tuesday, November 17, 2015

The World's Largest Fund Firm Is Worth Just $250MM. Wait, What?

If Vanguard [profile] were a person and not a gigantic mutual fund company, one might think that the Malvern, Pennsylvania-based firm has low self-esteem.

Frederick William McNabb III
Chairman, Chief Executive Officer
Joseph DiStefano of the Philadelphia Inquirer reports that, per Vanguard's mutual funds' annual shareholder reports, the world's largest mutual fund company by AUM is valuing itself at about $250 million in total. Like many insurers but uniquely among fund firms, Vanguard is mutually owned by the shareholders of its mutual funds, each of which holds a stake in the fund firm that Jack Bogle built.

Let's put that $250-million estimate in perspective. In recent fund firm deals, the soon-to-be-closed First Eagle deal values that mutual fund shop at about four percent of its AUM. Meanwhile, on the lower multiple end Russell is selling for a price that translates into just 0.42 percent of its AUM. Publicly-traded BlackRock, a Vanguard rival in the indexing and ETF space and the largest asset manager in the world, is currently valued at $56.41 billion, which is about 1.25 percent of its $4.5 trillion in AUM.

Vanguard, by comparison, is valuing itself at about 0.00736 percent of AUM. You can't even look at an asset manager for that kind of valuation. If Vanguard's price-to-AUM ratio were the same as BlackRock's, it would be worth $42.5 billion, 170 times more than its estimate.

Yet Vanguard's shares are not directly purchasable. The closest anyone, individual or institution, can ever come to buying shares in Vanguard is buying shares in Vanguard mutual funds that, in turn, hold tiny slices of Vanguard. And if a Vanguard fund's someday shocks the world by dropping Vanguard, the fund would be forced to sell its shares in Vanguard back to Vanguard.

"We do not think about a 'mark to market' valuation because there is no market for our shares," Vanguard spokesman John Woerth tells the paper.

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