Vanguard turns to what many view as the ‘dark side’ of investing, the world of complex, exclusive, expensive private equity investments
Vanguard Group plans to offer a private equity investments which will be managed by an outside firm called HarbourVest Partners. Initially, the private equity investment will be available only to institutions such as endowments and nonprofit foundations. But, Vanguard intends to move quickly beyond institutional investors.
Over time and as regulations change, Vanguard hopes to offer these private equity strategies to its individual, non-qualified retail investors.
Typically, private equity firms charge fees that are 2% of assets a year in management fees, plus 15% to 20% or higher of total returns in annual performance fees. Generally, money is locked up for years with little liquidity. This is why the U.S. Securities and Exchange Commission has long kept smaller, non qualified investors out of them.
In a statement, Vanguard chief executive Tim Buckley said, “Private equity will complement our leading index and actively managed funds, as we seek to broaden access to this asset class and improve client outcomes. While this strategy will be initially available to institutional advised clients, we aim to expand access to investors in additional channels over time. For individual investors in particular, this partnership will present an incredible opportunity — access and terms they could not get on their own.”
Contrasting Viewpoint
Eric Walters, founder of Silvercrest Wealth Planning, believes Vanguard’s move is “fraught with risks.” He added, “I think it could work if they are able to access top-quartile private equity managers, most of which are closed to new subscriptions”. Additionally, he added, “Managers below the top quartile often don’t do any better than public equities and often do worse. When you add the high fees and long holding periods, accessing lower-tier managers would be a bad deal for Vanguard clients.”
About Vanguard
Vanguard is one of the world’s largest investment management companies. As of December 31, 2019, Vanguard managed $6.2 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers 424 funds to its more than 30 million investors worldwide. For more information, visit vanguard.com.
About HarbourVest
HarbourVest is an independent, global private markets investment specialist with over 35 years of experience and more than $68 billion in assets under management, as of December 31, 2019.
References:
- https://www.forbes.com/sites/antoinegara/2020/02/05/vanguard-pushes-into-private-equity-by-accessing-dealmakers-like-stephen-schwarzman-robert-smith-and-orlando-bravo/#3431f0bf2760
- https://www.harbourvest.com/news/vanguard-and-harbourvest-announce-private-equity-partnership
- https://www.inquirer.com/business/vanguard-harbourvest-mortimer-tim-buckley-private-equity-20200206.html
- https://www.investmentnews.com/vanguard-puts-private-equity-investments-on-the-menu-187888