Mike Gitlin – The Century of Capital Group

**Mike Gitlin** (0:00)
The mindset of the Lovelace family was not optimizing for the Lovelace family. When JBL founded the company, he said in 1931, When my grandkids, who didn't exist at the time, when my grandkids pass away, no one in the Lovelace family should own any bit of Capital Group stock. There's very few founding families that would say that. His point was, it should be owned by the people who were working at the company at the time who were driving the client outcomes. That is a very powerful statement to make nearly 100 years ago. It can sound complex, but it's pretty simple. No investor should want to be with a company where you're left with a single individual's 300th best idea. That's what happens. When you're a sole practitioner in a strategy and you're managing a lot of money and you're diversified, you could be left with someone's less high conviction parts of the portfolio. The bottom 25 percent of their conviction names, why would you want those in a portfolio? You have analysts who are subject matter experts in a certain sector, and they have high conviction, you want those stocks in the portfolio. Your analysts who have conviction in their subject matter expertise, great, those names make their way in to the portfolio. You have portfolio managers, five of them, 10 of them, whatever the mandate would be, all expressing their conviction, all seeing what everyone else is doing, all using the research that we have internally, all having their own individual conviction. What you end up in a portfolio is, everyone has the same mandate, but you have the strongest convictions of individuals, not being left with any of their lower conviction ideas. Think of it as a multiple portfolio manager and analyst run best idea portfolio, as opposed to such a broad diversified one-person strategy.

**Ted Seides** (2:01)
I'm Ted Seides, and this is Capital Allocators.

**Ted Seides** (2:07)
Today's episode continues our ongoing miniseries covering organizations that have proven to be great training grounds of talent. There may be none larger and quieter than Capital Group. The $3.2 trillion global asset manager, whose 650-person investment team and 9,400 total associates have historically experienced a fraction of the turnover of industry norms. My guest is Mike Gitlin, the CEO of Capital Group, known for its long-term philosophy, private ownership, and multi-manager investment system. Founded in 1931 by Johnathan Bell Lovelace, Capital Group is one of the industry's largest and most enduring active managers. Mike joined the firm as a lateral hire in 2015, after more than two decades across the buy side, sell side, hedge funds, and global markets. Our exploration of Capital Group covers Mike's path through the investment industry, Capital's approach to recruiting and training talent, ownership model, client-centric focus, Capital System investment model, organization of a large global team, and new product development. We close with Capital Group's five-year strategic plan as it approaches the firm's 100-year anniversary in 2031 I've been fascinated by Capital for most of my life, as it was the professional home for my uncle, the late Jim Rothenberg, for his entire 45-year career. It's a privilege for me to share this conversation with memories of Uncle Jim in mind. Before we get going, as we turn the calendar on the new year, past guest Katie Milkman reminds us that it's a wonderful time for a fresh start to form new and improved habits. And start small, like the atomic habits James Clear has made so popular. I am going to stop responding to emails prolifically while I travel. My team confirmed that I'm both inefficient when doing so and in a rush to get answers that might do more harm than good. So I'll stop, slow down the decision, and write a funny out of office reminder instead. In the event you're struggling to find a New Year's resolution, how about telling someone you encounter about the award-winning Capital Allocators Podcast? It's true we've won some awards along the way, but don't worry about that. It sounds really impressive and you'll sound culturally plugged in for mentioning it. If you do that repeatedly over the next few weeks, you'll form a positive new habit and get in our good graces as we look to expand this year. So you'll have that going for you, which is nice. Wishing you a very happy New Year, happy listening, and a warm thanks for spreading the word. Please enjoy my conversation with Mike Gitlin.

**Ted Seides** (5:00)
Mike, thanks so much for doing this.

**Mike Gitlin** (5:02)
I'm glad we got together.

**Ted Seides** (5:03)
Why don't we start with the capital story?

**Mike Gitlin** (5:07)
We were founded coming out of the Great Depression, which is a really interesting founding of a company, especially one that's in financial services. So we were founded in 1931 with the view that we can manage people's money in a different and better way. There was a lot of speculation in the roaring 20s that led up to the Great Depression and the crash of the stock market. Our founder thought before the Great Depression that there were excesses and this didn't make sense. He had written about it in the 20s, liquidated ahead of time, preserved his capital and launched the entity afterwards. Even though he did that for the first 20ish years, it was largely a break even business. He wasn't super successful in scaling assets in the 30s and 40s. It was right after the Great Depression, which had a long tail to it. Part of the secret of the capital's success is, he kept the entity 100% owned by himself until it was profitable. He didn't want anyone else to share in any of the losses that would come in any calendar year. Only after in the 50s Capital Group became profitable, did he begin to sell little pieces to people at the company to share in the profitability as opposed to share in the losses.