Capital Group: Legacy, Philosophy, and Future Expansion

Capital Group, a large asset manager, employs a multi-manager system and values long-term investing over trading, managing $2.7 trillion with 9,000 employees globally.

### Capital Group CEO Mike Gitlin: Leading the $2.7T Investment Powerhouse with the Unique Capital System
* 🏢 Capital Group, founded in 1931 by Jonathan Bell Lovelace in Los Angeles, is one of the **country's oldest and largest asset managers**.
* 💼 CEO Mike Gitlin was recruited to Capital Group in 2015 to build and oversee the fixed income business, despite his background primarily in **equities**.
* 🧠 The firm's distinctive investment approach, known as the Capital System, employs a **multi-manager structure** with analysts acting as **investors in the portfolios**.
* 💰 Capital Group manages **$2.7 trillion in assets**, with **85% in equities** and **15% in fixed income**.
* 🌎 Gitlin travels extensively to meet clients and associates around the world, aiming to **expand the firm's global presence**.
* 📈 "Invest, don't trade. Invest for the long term, i.e. when markets are challenged, **don't get spooked**. Stay in there."
* 🎓 Gitlin did not pursue an MBA and advises new professionals to **work hard to learn and become experts in their field**.
* 🔮 The firm's long-term strategic plan is set with a "**2031 mindset**" for its centennial, and Gitlin expects to step down from the management committee at **63**.

If you look at the US and financial advisors, there's 290,000 financial advisors. 212,000 of those own a capital group strategy for their clients. Investors don't trade, invest for the long term, i.e. when markets are challenged, don't get spooked. Stay in their. Mike Gitlin has been preparing for a career in the investing world since childhood. I was really interested in the stock market. I would break out the newspaper. I would circle prices. I would follow them the next day. I would have a little piece of paper on the side that watched them. Now he runs Capital Group, one of the country's oldest and largest asset managers, founded in 1931 by Jonathan Del Lovelace in Los Angeles. He was one of the first pioneers in the mutual fund industry. And that was that was a very unique fact nearly 100 years ago.

And he wanted to do research.
So there was a lot of trading back then, but there was less research-driven
investing. The firm is well-known for its
distinctive investment approach, what they call the Capital System, rather
than individual all-star managers. The Capital System employs a
multi-manager structure, each responsible for a specific segment of
the portfolio. You get diverse opinions, you get
highest conviction. We like to say you're not left with one
individual's 300th best idea these days. Capital Group manages $2.7 trillion,
with more than 9,000 employees in 32 offices around the world.
I travel a lot to see our clients and associates around the world,
and in some areas we're just getting going and able to do and able to do a
lot more. So Capital Group is a firm that is so
large that it's hard to not know them in the money management world, but outside
the money manager world, it's not as

well known as other firms.
Why is that? You try to stay low key relative to
other money management firms. Historically, we've had a pretty low
profile. We try to let our investing in our
investment results do the talking and don't really promote ourselves.
More recently, we have built more in brand.
If you look at the United States, for example, Broadridge would say we're a
top three recognized brand in the United States.
Outside of the United States, we're growing our brand.
But our focus has been on managing people's money and a little less on
promoting Capital Group. You'll see more of that over time as we
get our name out there. But it's been a humble organization.
So let's talk about things that people often talk about today.
Do you think the presidential election, whichever way it goes, is going to have
a big impact on the stock market or the fixed income market?
If you look back over the last 20

elections. There's been two that have
been negative years for the stock market: 2000 and 2008. In 2000, we had the dotcom burst, and then in 2008, we had the global
financial crisis. Outside of that, the other 18 were
actually positive years for the stock market. When FDR got elected president, if you put $1,000 into the S&P 500 today, it
would be worth 22 million during that period of time. We've had eight Democratic presidents and seven Republican presidents. So market timing amidst presidential elections is not a good strategy. We like to say it's time in the market, not market timing. So I know there's a lot of concern about the election geopolitics. There's a lot of serious things happening in the world. Getting invested and staying invested is a lot better than trying to trade elections. What about the international markets? Are increasingly Americans are investing around the world.

Are you sanguine about the international markets as being reasonably predictable, or at least getting reasonably good returns? I think if you look at international markets, they've struggled relative to the U.S. for the last 15 years in a very simple way and for me, not for the audience. The S&P has done about twice as well as the international markets over the last 15 years, about 15% annualized versus seven or 8% annualized. If you look over the next 15 years, will that gap narrow? I think so. There's plenty of opportunities our analysts and portfolio managers are finding outside the U.S.. The other way I'd answer that is the domicile of a company where it's headquartered has very little to do with its business very often. Apple, Starbucks, US headquartered domiciled companies, half of their business is or the revenues are come from outside the U.S..

Now, as we talk, we're in New York City, but your firm is based where? We're based in Los Angeles, but we have 31 offices around the world. And when was the company actually started? 1931. And was started by Mr. Lovelace, Jonathan Bell, Lovelace. And was he a money manager before that, or he just decided to start a firm doing that? So he was and he wanted to start his own firm. And he was one of the first pioneers in the mutual fund industry. And that was that was very unique back nearly 100 years ago. And he wanted to do research. So there was a lot of trading back then, but there was less research driven. Investing. And he was a very bright man who wanted to do the research. And that's I think if you think of the foundation of our company, the hallmark of it, it's actually research. And he was the first one to do that when

he started in 1931.
I assume that Mr. Lovelace or his descendants are his
descendants. Descendants are big owners of the
company now. So he had a very selfless way about him.
And his son, John Lovelace, who really steered the firm for many years at
Capital Group, and Rob Lovelace and Jim Lovelace are still at Capital Group.
Their idea was to spread ownership. So they would John Lovelace would walk
around the hallways 50 years ago and or 40 years ago as well, and sell some of
his stock to someone else in an office next to him saying, I don't need to own
all of this company. So it's been a very selfless way to
manage a private enterprise. They really did disperse ownership to
hundreds and hundreds of people as opposed to just a few.
And the Lovelace family, they're shareholders now, but small shareholders
of the overall enterprise.

So if you're managing now $2.7 trillion,
which is a lot of money. I assume Wall Street investment bankers
come by every day and say you should go public.
You get an enormous value for your company. You're going to think about
going public, never. So we have very few nevers because never
has a really long time. We're never going public.
And the reason I say that is the opportunity for external shareholders to
come in and make our long term ethos into their short term needs is not
something we would want to do. So we are able to manage a company for
the long term. And that's not just a saying, that's
what we do. So when there's tough times out there, a
lot of folks aggressively cut costs that could impact their clients.
We're able to ride those storms with a pretty strong balance sheet.
Now, Capital Group is a firm that is actively managed.
For those people that aren't familiar

with that phrase, that means you're not
in passive indexes. You're not just buying the S&P 500 index
or something like that. But the theory behind passive index
funds is that in the end, it's hard to beat the markets.
You just go into a passive fund. You obviously don't agree with that.
Is that right? We've managed active assets for 93 years.
If you look at our fixed income results over five and ten years, every single
one of our strategies beat the benchmark after fees.
If you look at equity results over the long term, 89% of our strategies beat
the benchmarks, and the industry as a whole is less than 50.
So I can see why some folks would say, can active managers really beat the
benchmarks? A lot can't.
We have very smart folks and a good process, and we've done that over time.
And we will add passive in if we're creating a solution for a client, an
active, passive blended solution, but we

won't manage the passive ourselves.
We're active managers. So on passive, the theory again was that
you can't beat the market over a period of time.
But if that's wrong and you have been able to beat the market, why doesn't
everybody give you their money? And why do the passive funds do so well
in terms of getting capital? Well, a lot of people do give us their
money. We manage $2.7 trillion today.
Some folks just want cheap beta, some folks want very low fee and to track the
benchmark. And some folks say it's been difficult for equity managers to beat
the benchmark over the last decade. So there's been if you've owned the S&P
500 over the last 15 years, you've done very, very well.
In the long term, we beat those benchmarks.
So telling that story, telling the capital advantage, there's a lot of
folks who know it.

If you look at the US and financial advisors, there's 290,000 financial advisors. 212,000 of those own a Capital Group strategy for their clients. So a lot of folks know us and own us, but active management has had a struggle with a lot of other managers, and we recognize. So if you can be passive, there must be a secret to it. Is it that you're smarter? You hire smarter people, you work harder, you have more knowledge of the industries you invest in. What is it that you have that the passive people don't have? We have the Capital system. So the Capital system. In 1958, Jonathan Bell Lovelace, the founder of Capital Group, had a heart attack. He recovered from that, but was trying to figure out how to make sure that we have succession done right, how we don't have key person risk. And the theory at the time was let's have multiple portfolio managers.

participate in a given strategy, and then let's add our analysts as investors. Not stock raters, not credit raters, but actual investors. So you take really smart folks, you put them together in a portfolio. You add analysts to that portfolio who show their conviction in what they own in it, not what they tell you to own in it. And that creates the capital system. And that system is collaborative research. Our analysts in four companies last year, they did 21,000 company meetings. Our analysts and portfolio managers combined. You have a real edge that's about 80 or 90 meetings per day, per workday that are that our analysts and portfolio managers are having with CEOs around the world. You get an advantage with that kind of culture in that kind of research process. If somebody wants to invest with Capital Group, they should get a financial manager who says, you need this, that or something else.

And I can recommend somebody, a capital
group, to take care of your account. If you had $1,000,000, and you called up
a financial advisor, they would say to you, what is, what are your long term
plans? What's your risk appetite?
And they would construct their portfolio for that individual.
I'm hopeful and guessing that that advisor would have capital group
strategies in that investment plan. I was really interested in the stock
market. I would break out the newspaper.
I would circle prices. I would follow them the next day. Hey, let's talk about your own
background. So did you grow up in what city?
So I grew up in West Hartford, Connecticut.
And West Hartford, Connecticut is famous
for what? Well, Hartford was the insurance capital
of the world back then. So was your family in the insurance
business? My father, who's 82, he was a lawyer,
built his own law firm with a partner.

and he catered and served the insurance
industry, and a lot of other clients as well.
But that where that group of clients were his biggest clients.
Right. So when you were growing up, what did
you want to be, a money manager? Did you say, I really want to manage
money for other people, or what did you want to be?
So I didn't have that in mind. I was really interested in the stock
market. I would break out the newspaper, I would
circle prices, I would follow them. The next day, I would have a little
piece of paper on the side that that watch them.
And I tried to teach myself investing that way.
And so I didn't know I would be at Capital Group in my fifties, but I
didn't know I was interested in the markets, in the market movement.
So where did you go to college? I went to Colgate University in upstate
New York.

And you went there because they were good in money management, or you just happened?
I was trying to find the coldest place in the world to go to school, and upstate New York happened to be that.
No, it was a liberal arts education. I thought from an education standpoint, if I knowing that I was interested in investing early on, I wanted to learn liberal arts.
I majored in history, not accounting or economics. I wanted to learn a broad set of disciplines and then revert to my interest in the markets thereafter. So after you graduated, what do you decide to do?
So the first year I went to Australia, and in Australia I worked at a private school and I coached basketball and taught history and English, and I did that for six months as a bit of a student exchange program, post-college graduation. And that was just a fantastic experience. And then I returned in the early

nineties to Connecticut, and I needed a
job, and I found a job at a very small hedge fund to work in what was known
then as the back office. Now the middle office in an operations role.
Right. And you did that for how long?
Well, as a relatively short period of time where the principal of the firm at
that point brought me into his office, and I thought, God, it's so fast to get
fired. I didn't even do anything yet. And he said, Do you want to start
trading? And I said, Sure.
Like, why? And he said, No matter how bad you might
be, you can't be doing any worse than we're doing right now in that aspect.
So can you help us a bit? And I said, I can surely try.
I started working overnight from Connecticut, and I was trading the Asian
market. So I would come into the office at four or five in the afternoon and
work till four in the morning.

And I actually did that type of night trading for a total of five years. Did you specialize in fixed income or equity at that point? It was equity. So in my career, I've had the fortune of doing both. I spent the first 15 years doing equities, in the second 15 years more focused on the bond market. So what did you do after that? So after that, I moved to New York City. I was working at what was known as BBA Associates, which ended up being purchased by Credit Suisse. And I was in New York trading overnight for several years. I moved to Singapore and traded there in the Asian markets from the proper time zone and not as a night trader. And then I ultimately joined Citigroup. I moved from the buy side to the sell side, and I was asked by a guy named Dennis McCallister, Do you want to go to Asia, live in Hong Kong, and help manage our sales and trading business in the

region?
And I came home and asked my wife, Where were you? I was 29 at the time, and the prospect of moving to Asia probably wasn't on the top of my wife's list or my list at that time, but the opportunity was just incredible.
So we did it. She moved to where? We moved to Hong Kong at that point in 1999. So how long were you there?
I was in Hong Kong for four years, moved back to New York in 2003 in the sales and trading business at Citi. And then I went to T. Rowe Price in 2007. T. Rowe Price is a money management firm based in Baltimore, a mutual fund.
And you were doing fixed income there. So I joined initially to oversee the global trading group, and then my predecessor in the fixed income group there, Mary Miller, went to work for Obama as an undersecretary of Treasury, and the CEO at the time, Jim Kennedy.

said, Can you oversee the fixed income
group? And my immediate response was, You
should find someone capable to do that. And he said, We tried, but you still do
it anyhow. And so I ended up doing that.
I don't think I was really qualified to do that at the time where
the majority of my background had been equities.
But he said, We'd love you to do it. And I had that experience in 2009.
All right. So you're overseeing fixed
income at T. Rowe Price. Then you're recruited to come to Capital
Group. Buy Capital Group as largely an equities organization, not a fixed
income. So why would they recruit a fixed income
person? You know, at the time, Capital Group had
assets that were about 85% equity and 15% fixed income.
And Tim Palmer, the CEO who came before I did, called and said, We want to be a
world-class fixed income manager.

We have great people. Which capital group did have? But it hasn't been our primary focus, and we want to do that for the next generation. Income as people retire is critical. Would you come out here to California and do that for us? And we met for a while, and I had no intention at the time of leaving T. Rowe Price. But Capital Group has an incredibly unique culture and having that opportunity. It's the largest equity manager with a relatively undersized fixed income business and the resources to make it great. And I said to Tim, There's a long list of things that we need to do if you really want the company to be best in class in fixed income. And I shared the list with him, and he didn't line item veto, he said, Let's just do it right. And so I joined Capital Group at the beginning of 2015. You joined and you think that you would ever be the CEO since you were a fixed

income person coming into an equity
shop? No.
So that wasn't the, it really wasn't the intent.
The intent was to have the resources work with the folks who were already a
capital group, bring in some other folks who could help and build that business.
The intent was never to be the CEO of Capital Group.
And I should say, yes, I am the CEO of Capital Group, but we are managed by
three senior partners. Jody Johnson and Martin Romo are my
partners who are the senior folks. And we also have a ten-person management
committee. So Capital Group's not overseen by just
one person. It's a much broader spread structure
than just one CEO. Okay, So you became the CEO how long ago
now? October of last year.
And how are you enjoying being the CEO or is it more aggravation than it's
worth? No, I'm enjoying it.
Look, we have great clients. We have this business that's already
large, but there's so many other things

we can do for clients around the world.
It's fun. I think if you're enjoying what you're
doing, the stress of it, while it's still stressful,
isn't as overwhelming as it otherwise might be.
So I'm enjoying it. I travel a lot to see our clients and
associates around the world. And in some areas, we're just getting
going and able to do a lot more.
Invest, don't trade. Invest for the long term, i.e.
when markets are challenged, don't get spooked.
Stay in there. Now in the money management world or in
the financial world, very often people go and get an MBA, Masters of Business
Administration. You obviously did very well without
getting one. So do you recommend that people not get
an MBA, or you think people should get an MBA?
I think it depends on the individual. For some folks, it's important.
It's a good steer.

and for other folks who come out of
college and want to start doing something, it might not make sense to go
back. I don't I don't have a hard and fast
rule on that. I guess if I were going to give advice,
though, for new folks entering the workforce, it's don't listen to folks
who say don't work that hard. There's some there's a mentality out
there that have so much work life balance that you're not sure you're
working sometimes. And my my comment is work hard enough to
make sure that you're learning from people.
You're becoming an expert in something. Don't plan to too far ahead.
I had no idea this is what I would do 25, 30 years ago.
Don't try to plan too far ahead, but be an expert at what you do and you'll be
recognized to do other things. And by the way, do you actually get
people to come into the office to work?

Because a lot of money management firms actually can't get their people to come back to work, or they beg them to come back for three days a week physically in the office. What is your pattern? Our investment professionals have four days a week in the office. They travel together a lot. This culture is a collaborative one. You have to work together in person. It's not always popular when I say that working together in person is so important, and our investment folks want to be together. They want to travel together, and they're doing four days a week. What is the best investment advice you've ever gotten? What investment advice would you give to others? Invest, Don't trade, invest for the long term, i.e. when markets are challenged, don't get spooked. Stay in there. If you're not a professional, have someone professionally manage your money. Don't get involved in investment hobbies, as I like to say, investment hobbies are generally not profitable.

So get invested early.
Stay invested through all periods, regardless of where the market is at
that point, and ask someone to do it who does it for a living.
I wouldn't be good as a dentist for you, and a lot of folks aren't great at
managing their own money. Get a financial advisor and have them
help you out. What's the most common mistake that
investors make? I think individual investors.
It's not getting invested early enough in their lives so it can compound over
time. Or trading, as opposed to investing.
And for professional investors, it's short termism.
It really is. It's trying to be too smart on
every quarterly earnings report. That's not great long-term investing.
And so it is trying to be too smart and too tactical in how they invest, as
opposed to looking out five years and ten years and taking advantage of that
opportunity to invest in the long term. So how old are you now?
53.

53. It's a teenager compared to me. So how long is there a requirement that you stay for a certain period of time or retire requirement that you leave at a certain period time at Capital Group for management committee members, only the ten members of management committee must step off a management committee at 63. That's ten years for me. In reality, we're working on our long term strategic plan. Right now. Our centennial is in 2031 and our long term strategic plan is 2031 mindset. I think the senior leaders will do our very best to deliver that long term strategic plan with the entire enterprise, and that's probably a good time for someone else to write the next chapter.

Bloomberg Wealth: Michael Gitlin

David Rubenstein

The Success and Philosophy of Capital Group

Capital Group is one of the largest asset managers globally, with a unique multi-manager investment approach.

The company has historically maintained a low profile, focusing on investment results rather than self-promotion.

Despite its humble approach, Capital Group is now working on building its brand and recognition in the market.

Capital Group's Unique Approach to International Markets and Company Ownership

Capital Group believes that the gap between the U.

and international markets will narrow in the next 15 years.

The company, founded in 1931 by Jonathan Bell Lovelace, has a selfless approach to ownership, dispersing it among hundreds of people.

7 trillion, Capital Group has a firm stance on never going public, in order to maintain their long-term ethos.

The Debate Between Active and Passive Fund Management

Capital Group has a long history of outperforming the benchmarks, with the majority of their strategies beating the market.

Despite the success, passive funds still attract a lot of capital due to their low fees and the perception that it's difficult for equity managers to beat the benchmark.

The Capital Group attributes its outperformance to the Capital system, which involves having multiple portfolio managers to mitigate key person risk.

The Capital Group's Unique Investment Strategy

The Capital Group's investment strategy involves combining smart analysts in a portfolio, focusing on collaborative research and having a high number of company meetings.

They aim to provide individualized investment plans based on clients' long-term goals and risk tolerance.

The company's CEO had a personal interest in the stock market from a young age and taught himself investing before joining Capital Group in his fifties.

The Career Path of a Finance Professional

A finance professional shares his journey from liberal arts education to trading in hedge funds.

He transitioned to trading in the Asian markets and ultimately moved to New York City to work for Credit Suisse.

Later, he joined Citigroup and relocated to Hong Kong to manage the sales and trading business.

Career Journey from Hong Kong to Capital Group CEO

Moved to Hong Kong in 1999, then worked in sales and trading at Citi in New York before joining T.

Initially tasked with overseeing the global trading group, later took on the role of overseeing the fixed income group, despite feeling unqualified.

Recruited by Capital Group to build and lead their fixed income business, attracted by the company's unique culture and resources, eventually becoming the CEO in 2021.

The CEO of Capital Group on Leadership and Business Growth

The CEO of Capital Group, who took on the role in October, enjoys the position and sees potential for business expansion.

He believes in investing for the long term and thinks the decision to get an MBA depends on the individual.

His advice to new professionals is to work hard, become an expert in something, and not overemphasize work-life balance.

The Importance of In-Person Collaboration in Investment Firms

Investment professionals at Capital Group work in the office four days a week and emphasize the importance of in-person collaboration and travel.

The best investment advice given is to focus on long-term investing, avoid trading, and seek professional financial management.

The most common mistakes for investors are not starting to invest early enough, engaging in trading over long-term investing, and being too focused on short-term gains.

The retirement requirement for Capital Group's management committee members is to step down at 63, in line with the company's long-term strategic plan leading up to 2031.