Vanguard's decision in 1990s was boon to jobs here

Nearly 20 years ago, the Vanguard Group started opening campuses in other parts of the country, first in Arizona in 1994 and then in North Carolina three years later.

The plan was to keep doing that until employees of the Malvern mutual-fund giant were spread over five or six states, but the company hit a wall when it tried to pick a fourth site.

"We couldn't come up with a region that had the kind of education center that Philadelphia has, that would offer us the kind of talent that we have been able to get from Philadelphia, so we really decided to double down," Vanguard's president and chief executive, F. William McNabb, said last week.

The Philadelphia region has benefited significantly from that decision by Vanguard management in the late 1990s. The area is now home to about 10,000 of Vanguard's 13,700 employees.

Since 1998, just about when the decision was made to concentrate operations here, Vanguard has added a total of 5,600 employees, the company said. In the last five years, Vanguard has hired 5,000 people, for a net gain of about 1,000 employees, after 7 percent annual employee turnover.

Under the scenario once contemplated by management, many of those new employees would now be dispersed over three more states, instead of being concentrated here.

"In some ways, from a business standpoint, I'd love to have more diversification," McNabb said. "I'd love to have a little bit bigger presence on the West Coast. We just can't find the talent the way we can here."

McNabb, who has worked at Vanguard since 1986 and became CEO in 2008, shared the little-known story of abandoned plans for broader geographical placement of Vanguard's workforce at the 2013 Regional Congress on Talent and Education - an event organized by the Main Line Chamber of Commerce to strengthen ties between colleges and universities.

Business leaders at that meeting, including Jeffrey Westphal, president and CEO of Vertex Inc., a corporate tax software and services company in Berwyn, expressed deep admiration for Vanguard.

"We aspire at Vertex to be one-tenth Vanguard's scale and maybe one-tenth its influence in the world," Westphal said. "I'm proud as a regional leader that we have firms like Vanguard in the Philadelphia area, true global leaders."

Vanguard's presence helps the nonprofit Select Greater Philadelphia to sell the region to companies looking to relocate, the group's CEO, Thomas G. Morr, said.

McNabb "is passionate about this region, and is a very effective spokesperson for why it is they are here and why this is a very good place to run a business," Morr said.

Over the last decade, Vanguard has only solidified its industry leadership. Its share of the mutual-fund market was 17.5 percent last month, up from 12.6 percent at the end of 2003, according to Strategic Insight, a financial information firm.

In the faster-growing exchange-traded fund market, Vanguard's share has soared to 19.1 percent in May from less than 2 percent in December 2003, Strategic Insight said.

Vanguard, known since its founding for low-cost funds, has benefited from numerous industry trends, said Philadelphia mutual-fund consultant Burt Greenwald, of B.J. Greenwald Associates.

Those include the long-term trend toward passively managed index funds, a heightened awareness of how mutual-fund expenses reduce market returns, a shift in the way in which advisers are paid, and the increasing popularity of bond funds, Greenwald said.

"The fact that they are commanding a much larger share of the overall market than they did 20 years ago, that's a credit to the success of their strategy and how well they executed that strategy," Greenwald said.

A big reason for McNabb's enthusiasm for the Philadelphia region comes from Vanguard's strong ties to area colleges.

The Boston area has a similar heavy concentration of higher-education institutions, but also a much bigger array of investment firms, including Fidelity and Putnam, competing for the highly educated workforce, McNabb said.

Here, Vanguard is king of the hill.

Of the 10 top alma maters represented in Vanguard's local workforce, "nine of them are within 38 miles" of the Malvern campus, McNabb said. "The 10th is Penn State. Not too far up the road."