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Vanguard Considering Private Equity for the very wealthy: report

Erin Arvedlund, The Philadelphia Inquirer on

Published in Home and Consumer News

Vanguard is again considering jumping into the private equity realm, an alternative investment generally considered only for the very wealthy.

Vanguard has been in talks with HarbourVest Partners in Boston and Pantheon Ventures in London, plus at least one other firm, to give private market strategies to clients of its advisory services, according to a story in the Wall Street Journal.

It could mark a huge departure for the low-cost index fund giant, which now manages $5.6 trillion in assets for investors globally."

"If everyone else is going there just because it's profitable doesn't mean we should go there," Vanguard CEO Mortimer "Tim" Buckley said in an interview with the Journal earlier this year. "We will only go somewhere if we think we can do it better for your portfolio," he said.

"We continuously evaluate our products and services, but have no immediate plans to offer a private equity fund," said Vanguard spokeswoman Emily Farrell.

Private equity funds, like many alternative investments, charge a management fee and a performance fee annually. Typically, the funds charge 2% of assets as a management fee and up to 20% of the returns as the performance fee. Minimum investments are generally $500,000 and higher.

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Vanguard has taken a stab at offering private equity and other alternatives such as hedge funds in prior years, noted Daniel Wiener, who follows Vanguard for clients. "This isn't Vanguard's first foray into the world of high minimum, high-cost, high stakes investments. As before, Vanguard's goal is to attract more high-net worth investors into the fold."

In 2001 Vanguard inked a deal with Hamilton Lane Advisors, a Bala Cynwyd, Pa., private-equity adviser, to put together a fund-of-private-equity-funds to offer to its high net worth clients, such as those in its Flagship program, plus institutions.

Claiming that well-selected funds would outperform index funds, Vanguard in 2001 said it would charge a fee of 0.85 percent, then hand 0.50% over to Hamilton Lane while keeping the other 0.35 percent.

Investors, however, would not only pay this fee to Vanguard, but would also be paying the underlying 1% to 3% annual fees for each private-equity fund the portfolio invested in, plus the 20% to 30% of profits, or so, that typically goes to the private equity fund's advisors.


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