The relationship between Vanguard and Pzena

Caroline Cai: The relationship with Vanguard is really critical to our success at Pzena over the years. It's been a very long and successful partnership from our perspective.

And one of the things that we really, really admire about Vanguard is the long-term focus and the consistency of that focus. After the Global Financial Crisis, value and Pzena as a value manager had its own challenges. Not only did Vanguard stick with us, recognizing value has a role to play in the portfolio and good process, good philosophy is where you're focused now not near-term trailing performance. Not only did Vanguard stick with us, it also expanded the relationship with Pzena over the years.

We think good partnership is built on aligned fundamental beliefs, so the long-term focus, the focus on excellence, on collaboration, good people, good process are all the things that we see in our daily interaction with Vanguard and are things that we believe are critical to the long-term success of any asset manager. So we look forward to many more years of partnership and success with Vanguard.

Pzena’s active edge

Caroline Cai: I think the philosophy and the process really tie into the edge, so I think of it as having three key components – the clear philosophy, good people, and the good process. So value investing has very strong behavioral and psychological underpinning and strong empirical evidence that this is an anomaly that's persistent in the market over time because human psychology doesn't really change over time the discomfort with uncertain situations.

And then it really comes back to the people because that's what we rely on: how does this business get in trouble and is this permanent or temporary? How can it fix itself? For that you need a group of people with very diverse backgrounds who really just want to be students of businesses as opposed to traders of stocks because it's a different time horizon, a different mentality that you bring to the table.

So our analysts are really focused on what makes this company profitable not what the next guy is willing to pay for this business, and we really draw from a very diverse background in terms of industry, education, and just pure geography where people grow up with what they’ve been exposed to.

Then on the process side, as I talked about earlier, it is all about a repeatable and disciplined process whether value is in favor or out of favor, and that comes from the strong belief in this way of investing this philosophy makes sense. It's really the only thing we know how to do, and we believe that that can lead to good performance over the long run, really what our clients expect us to perform for them to provide that value exposure consistently over time.