Will Vanguard Launch Its Private Investments the ‘Vanguard Way?’

Vanguard upended investing once. Who’s up for another round?

The Malvern, Penn.-based asset manager announced a partnership with Blackstone and Wellington last week to launch new products that package private and public assets into a single investment, which is becoming a hot-button corner of the industry. Their plan puts Vanguard on a collision course with other heavyweight partnerships like State Street and Apollo, as well as Capital Group and KKR. The big question becomes: How does a push into private investments — which generally chase bigger returns with additional risk and higher fees — fit in with Vanguard’s ethos of taking a low-cost approach? 

“Private assets have been sort of thrust on the industry, by the industry,” said Morningstar research analyst Daniel Sotiroff. “It just doesn’t seem to fit with what Vanguard’s been doing for the last 50 years.”

Vanguardians of the Galaxy

Private investments have been a staple in ultra-high net worth investors’ portfolios for years and advocates say the new products are opening up those opportunities to the masses. In 2024, private assets topped $13 trillion globally and are expected to hit $15 trillion this year. Vanguard, which manages some $9 trillion for more than 50 million clients, already opened a private equity fund in 2020. What’s stopping it from bringing a more index-driven approach to the rest of the private space? 

“Maybe this is an opportunity to disrupt that whole system,” Sotiroff said, adding the company could aggressively cut fees and pass the savings on to its investors. “It forces everyone else to compete on their terms.” One area Vanguard may focus on is retirement plans that, like private investments, have long-time horizons and lock up assets long-term. New products could include:

• Collective Investment Trusts, which are similar to mutual funds, but specifically designed for qualified retirement plans.
• Interval funds that redeem their shares at specific, pre-defined intervals; or tender offer funds that periodically repurchase their shares at net asset value.

“Investors with the right combination of risk tolerance, long-term time horizon, liquidity needs, and access to high-performing managers can benefit,” said Rich Powers, Vanguard’s head of private equity product.

I Am Groot? But some advisors have voiced concern that firms may be looking to offload “junk” assets or that the manager’s interests might not be aligned with their own. “That’s where you start to see the problems,” Sotiroff said, adding that Vanguard executives said the products would be built in the “Vanguard way.” 

“Vanguard has an answer to just about everything,” Sotiroff said. “If private assets are the next big thing, you have to at least have your hat in the ring.”