By Andy Serwer

Mike Gitlin, CEO of the Capital Group, has worked at the company for 10 years and is still considered somewhat of a newbie.

That is because Capital -- which has some $3 trillion under management, primarily in active equity funds -- is all about the long game. Capital invests for the long haul, and its employees tend to stick around for many decades, too.

Founded by Jonathan Bell Lovelace in 1931 in Los Angeles, Capital has become one of LA's biggest financial services companies. In the 1930s, Lovelace -- whose grandson Rob is a portfolio manager at the firm -- helped Roy and Walt Disney finance Snow White and the Seven Dwarfs and Fantasia. Capital is a funds wholesaler, distributing its wares through financial advisors instead of directly to investors.

Privately held with ownership stakes parceled out to senior managers, Capital tends to keep a low profile. So it was that much more compelling when I had a chance to speak with Gitlin recently as part of our At Barron's interview series. Here are some highlights of the interview, which have been edited and condensed for clarity.

Barron's : What is the investing philosophy of your company?

Mike Gitlin: It really has three hallmarks. One is collaborative research, which means analysts themselves manage money. It's very different when you have skin in the game and you're managing risk and portfolio construction. It makes you an investor, not a stock or credit rater. The second part of that is a diverse perspective. Not only are the analysts managing money inside of the portfolio, but you may have multiple portfolio managers working on the same strategy.

The reason we do that is so they can all express high conviction. You're not left with one individual's 300th best idea. And the third hallmark of the Capital system is long term. Folks like to say long term but it isn't long term, unless you measure it that way.

For our analysts and portfolio managers, the number one driver of their quantitative bonus is their eight-year performance number. The lowest driver is their one-year number. So it's eight, five, three, one, with the eight-year number being more than half of the formula. That is how to incentivize long-term outcomes.

You guys have some really strong retention rates, right? Legendary portfolio manager Gordon Crawford , who specialized in media investing, worked there for four decades.

We have very low turnover, low single-digit attrition. Investment professionals come early and stay long. It isn't abnormal to have our people retire at 65-years old after a 30, 40-year career.

You've been CEO since the fall of 2023 What is your strategy?

What I'm doing is what we're doing. We're not a super hierarchical company. We have three senior leaders and a management committee of 10 folks. So I'm in the CEO seat, but we're really managed by a group of folks.

Our strategy is fourfold. So one investment results versus benchmarks and competitors. That is our focus. It's about outcomes, first and foremost. The second thing is evolving with clients. What do they need? Mutual funds, yes, but there's also ETFs, collective investment trusts, and institutional separate accounts.

Third is simplify and scale. We've made a lot of progress, but we've got some room to go on that. And the last thing is how do we keep investing in culture, in the [employee] experience.

Morningstar has written that you guys had some outflows over the past several years. What's the situation with that?

All active equity managers have had outflows in active equities. Our negative flow rate was very low as a percentage of our assets under management, about 1, 1 1/2 percent. A lot of the active managers were 3, 4, 5%. Helping our flow rate are these new products, active ETFs and collective investment trusts. Mutual funds will always be critical to Capital Group, but these other vehicles will take that negative flow rate into positive territory.

It's hard to predict exactly when. I would guess the next 12 to 18 months, depending on a lot of variables.

Right. Active management and mutual funds, which have been the hallmarks of what you do, face headwinds, so what are you doing specifically to address that?

A lot of active managers face headwinds when they have high fees and poor results. For us, we have low fees and good results. If you look at our equity and multi-asset strategies since inception, you put them all together, 87% beat benchmarks, gross fees, and 80% net of fees. The vast majority of our strategies are beating benchmarks over the long term and then relative to competitors. depending on which time period; 10, 15, 20, 25 years, around 75 to 90% are first- or second-quartile in their relative peer groups.

We didn't have [exchange-traded funds for some time]. ETFs have been described as passive because active managers haven't launched ETFs. Once we did, then folks said, 'Gosh, we can find the same investment services you've had in mutual fund form and ETF form.' Now 35,000 financial advisors have used our ETFs. So it's important to be vehicle agnostic. We now offer active/passive hybrids.

You also are now offering alternative investments as part of a new relationship with KKR, correct?

Instead of trying to compete with KKR and what they do incredibly well, we decided to partner with them. What we just launched are active alt combos. Think of these as interval funds. Buying liquidity is daily. Selling liquidity is quarterly. We do 60% public credit and KKR does 40% private credit. It's bringing together the best of both worlds. We have a track record in public credit. KKR has a track record in private credit.

We put a fee on it that was very competitive. To give you an example, the average interval fund is just about 2 1/2 percent fee. Ours are 84 and 89 basis points, or less than 1%, versus 2 1/2 percent.

Is this appropriate for retail investors though? That is a big question these days.

I think one of the reasons we wanted to create this hybrid product was that if it's a financial advisor's first foray into alternatives, it lets them use alternatives for their clients in a calm way. 60% public and 40% private might be a less complicated or costly journey than if it was 100% private markets.

And so yes, it's appropriate. It depends on the financial advisor, it depends on the end client. It depends on their risk profile. But this is a great way to start off for a lot of people.

Mike, I have to ask about your brother, Dave Gitlin, who is the CEO of Carrier. How's it possible you have two CEOs coming from the same family? What did your parents feed you?

My other brother, Jeff, as well. He's at PwC, been in healthcare consulting for 30-plus years. While he isn't a CEO, he might be the most impressive Gitlin of all. Growing up we would have a good old-fashioned family dinner, and you had to say something intelligent. My father was a lawyer and at the family dinner he would raise a topic, and if you said something just off the cuff and you hadn't been super thoughtful, he would let you know that.

My wife and I tried to do that with our own family. Try to have a calm family dinner and talk about something substantive in the world. It's harder today with all the distractions. But if you can carve out some time just to be thoughtful, good things can happen.

Write to Andy Serwer at andy.serwer@barrons.com

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June 12, 2025 12:41 ET (16:41 GMT)

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