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Investing Specialists

Vanguard CIO Sauter to Retire at Year End

A veteran Vanguard executive with no fund-management experience will take his place, but lots of investment expertise remains at the firm.

Jack Bogle started the first index mutual fund, but Gus Sauter made it what it is today.

That will be the legacy of Sauter, 57, who on Friday announced that he will retire as Vanguard's chief investment officer at the end of the year. Sauter said that after 25 years at Vanguard and more than nine years as CIO, he was "leveling off a bit" and that it was time to step aside for someone new. "Ten years is maybe all one should serve as CIO," he said in an interview.

That someone new is Tim Buckley, 43, a 21-year Vanguard veteran who has led the family's Retail Investors Group since 2006 and held various other positions including chief information officer at the family. Buckley does not have Sauter's investment resume--he's never run a mutual fund--but for several years he has been a member of Vanguard's Portfolio Review Group, which overseas the managers of the family's internally and externally managed funds. "If I didn't have confidence in Tim, I wouldn't be retiring," said Sauter, who will work with Buckley until Dec. 31, 2012, to smooth the transition. "I'm a little nervous that he's going to do such a good job that he'll make me look woefully inadequate."

Vanguard will miss Sauter. He came to the family in 1987 to manage the  Vanguard 500 Index (VFINX) before passive investing had won the legions of adherents it has today. He built the trading systems and hired the team that made Vanguard a standard bearer for low-cost and accurate index tracking.

He also developed the family's active quantitative stock strategies and managed funds like Vanguard Strategic Equity and slices of other Vanguard active funds. Sauter also helped lay the groundwork for Vanguard's push into exchange-traded funds, which have been gaining steam in recent years. The firm now manages more than $1 trillion globally in passive funds and ETFs and more than $12 billion in active quantitative strategies.

Since becoming the family's first CIO in 2003, Sauter also has overseen the globalization of Vanguard's investment capabilities, recently bolstering its European staff, and he has invested heavily in expanding and reorganizing the family's fixed-income operations. Over the years he's become well-known in the industry as an expert on index construction, market structure, trading costs, quantitative investing, and ETFs. Sauter has no specific plans for retirement, though he said he would like to teach at the university level. "My biggest regret is that I didn't find Vanguard earlier in life," Sauter said.

It's surprising that Vanguard named Buckley, who has more management than investing experience, as CIO. The arrangement could work at Vanguard, however. The firm's core internal competency is running index funds, quantitative equity, and some active bond funds, and it has experienced people running all of those areas. It outsources many of its active funds to about 30 subadvisors; keeping track of them is a big job, but one that Buckley has been involved in for several years as a member of PRG. Sauter said Buckley doesn't need to be an investor to run the group. Time well tell, but given the depth of experience at Vanguard's equity and fixed-income operations, he may be right.

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Dan Culloton has a position in the following securities mentioned above: VFINX. Find out about Morningstar’s editorial policies.