Vanguard files for exemptive relief:

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Topic Author
Barry Barnitz
Wiki Admin
Posts: 3353
Joined: Mon Feb 19, 2007 9:42 pm
Contact:

Vanguard files for exemptive relief:

Post by Barry Barnitz »

Hi:

Vanguard has filed for exemptive relief for the firm's Managed Payout Funds to be able to invest up to 20% of assets in the newly established Vanguard Alternate Strategies Fund. Here is the filing.
The Alternative Strategies Fund is a sub-fund of an umbrella fund5 known as Vanguard Investments Select Series I, PLC, which is organized in Ireland as a limited liability Variable Capital Corporation (“VCC”), a type of Irish investment company. Because the Alternative Strategies Fund uses non-traditional strategies and instruments, it has been established as a VCC that is a Qualified Investment Fund (commonly known as a “QIF”), a type of fund available only to high net worth individuals and institutional investors. The fund will be regulated by the Irish Financial Services Regulatory Authority (the “FSR”) and will comply with Irish securities and other applicable laws.

The Alternative Strategies Fund is expected to employ multiple strategies,6 each of which will seek to produce investment returns that have two key characteristics: (1) performance over the long term comparable to, but independent of the direction and timing of, U.S. stock returns; and (2) volatility that is similar in magnitude to the historic volatility of the U.S. stock market. To the extent that a strategy contemplated for use in the Alternative Strategies Fund is expected to exhibit lower volatility than the historic volatility of the U.S. stock market, the Alternative Strategies Fund will use leverage to adjust the volatility and expected returns of these investments to targeted levels. Some of the Alternative Strategies Fund’s strategies may be designed to capture risk premiums through investment opportunities arising from the structure, pricing, liquidity, volatility, or other features of the financial markets. The fund may employ other strategies designed to take advantage of relative value differences perceived among securities or across the financial markets.

5 An umbrella fund is the Irish equivalent of a registrant and a sub-fund is the equivalent of a fund that is a series of the registrant.

6 The number of strategies will vary over time. Currently, there are six strategies, although one is temporarily inactive. VGI likely will add strategies over time to promote diversification.


The Alternative Strategies Fund’s strategies may be implemented through direct or indirect investments in stocks, bonds, hybrid securities, commodities, futures contracts, currencies, and other asset classes or investments. The fund may employ leverage, derivatives, short sales, and other complex investment techniques or transactions.

.
regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Post by Levett »

I realize I'm a (proud) fuddy-duddy, but I look at the language of the filing, Barry, and roll my eyes and wonder what John Bogle thinks. :roll: Bob U.
There are some things that count that can't be counted, and some things that can be counted that don't count.
User avatar
HueyLD
Posts: 9789
Joined: Mon Jan 14, 2008 9:30 am

Re: Vanguard files for exemptive relief:

Post by HueyLD »

Barry Barnitz wrote:..a VCC that is a Qualified Investment Fund (commonly known as a “QIF”), a type of fund available only to high net worth individuals and institutional investors.

To the extent that a strategy contemplated for use in the Alternative Strategies Fund is expected to exhibit lower volatility than the historic volatility of the U.S. stock market, the Alternative Strategies Fund will use leverage to adjust the volatility and expected returns of these investments to targeted levels. Some of the Alternative Strategies Fund’s strategies may be designed to capture risk premiums through investment opportunities arising from the structure, pricing, liquidity, volatility, or other features of the financial markets. The fund may employ other strategies designed to take advantage of relative value differences perceived among securities or across the financial markets.

...The number of strategies will vary over time. Currently, there are six strategies, although one is temporarily inactive. VGI likely will add strategies over time to promote diversification.

...The Alternative Strategies Fund’s strategies may be implemented through direct or indirect investments in stocks, bonds, hybrid securities, commodities, futures contracts, currencies, and other asset classes or investments. The fund may employ leverage, derivatives, short sales, and other complex investment techniques or transactions.
Holy smoke! Is this the same Vanguard company as most of us know? Sounds like a page out of a hedge fund's filing.

Hopefully this is not the beginning of a new trend toward dumping "non high net worth" investors.
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Post by Levett »

Huey,

The times require repetition! :D

Cheers. Bob U.
There are some things that count that can't be counted, and some things that can be counted that don't count.
Paladin

Re: Vanguard files for exemptive relief:

Post by Paladin »

Barry Barnitz wrote:Hi:

Vanguard has filed for exemptive relief for the firm's Managed Payout Funds to be able to invest up to 20% of assets in the newly established Vanguard Alternate Strategies Fund. Here is the filing.
The Alternative Strategies Fund is a sub-fund of an umbrella fund5 known as Vanguard Investments Select Series I, PLC, which is organized in Ireland as a limited liability Variable Capital Corporation (“VCC”), a type of Irish investment company. Because the Alternative Strategies Fund uses non-traditional strategies and instruments, it has been established as a VCC that is a Qualified Investment Fund (commonly known as a “QIF”), a type of fund available only to high net worth individuals and institutional investors. The fund will be regulated by the Irish Financial Services Regulatory Authority (the “FSR”) and will comply with Irish securities and other applicable laws.

The Alternative Strategies Fund is expected to employ multiple strategies,6 each of which will seek to produce investment returns that have two key characteristics: (1) performance over the long term comparable to, but independent of the direction and timing of, U.S. stock returns; and (2) volatility that is similar in magnitude to the historic volatility of the U.S. stock market. To the extent that a strategy contemplated for use in the Alternative Strategies Fund is expected to exhibit lower volatility than the historic volatility of the U.S. stock market, the Alternative Strategies Fund will use leverage to adjust the volatility and expected returns of these investments to targeted levels. Some of the Alternative Strategies Fund’s strategies may be designed to capture risk premiums through investment opportunities arising from the structure, pricing, liquidity, volatility, or other features of the financial markets. The fund may employ other strategies designed to take advantage of relative value differences perceived among securities or across the financial markets.

5 An umbrella fund is the Irish equivalent of a registrant and a sub-fund is the equivalent of a fund that is a series of the registrant.

6 The number of strategies will vary over time. Currently, there are six strategies, although one is temporarily inactive. VGI likely will add strategies over time to promote diversification.


The Alternative Strategies Fund’s strategies may be implemented through direct or indirect investments in stocks, bonds, hybrid securities, commodities, futures contracts, currencies, and other asset classes or investments. The fund may employ leverage, derivatives, short sales, and other complex investment techniques or transactions.

.
regards,
There are many roads to Dublin. :lol:
Beagler
Posts: 3442
Joined: Sun Dec 21, 2008 6:39 pm

Post by Beagler »

I can't believe this missive is from VG. This is unsettling.

Thankfully they still run their index funds well.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.
Tramper Al
Posts: 3665
Joined: Thu Oct 18, 2007 11:42 am

Post by Tramper Al »

I just looked at the Managed Payout funds, and they seem at the moment to be roughly 5% Market Neutral Fund and 10% Other. Is this 20% aimed at one of both of these areas, do you know?

https://personal.vanguard.com/us/funds/ ... st=tab%3A2

I don't know that "Other" is, but I recall at some point the funds were going to use some kind of commodities vehicle? In any event, 20% would mean cutting into the allocations to traditional stock and bond index fund, I think.

It almost seems as if these Managed Payout Funds are getting more exotic, not less.
User avatar
HueyLD
Posts: 9789
Joined: Mon Jan 14, 2008 9:30 am

Post by HueyLD »

Al,

Please see this section out of the prospectus:
Other Investments. The Fund may invest in selected other investments (“other
investments”) that employ investment strategies that have historically generated
capital appreciation over the long term while exhibiting low correlation with the
returns of the U.S. stock market. The advisor believes that the expected return
characteristics of these other investments offer potential diversification to a balanced
portfolio of stocks, bonds, and cash. A description of the Fund’s potential other
investments follows.
o Commodity-Linked Investments. The Fund may allocate a portion of its assets to
investments that create exposure to the total return of a diversified basket of
exchange-traded futures contracts on physical commodities. Commodities include
real assets such as agricultural products, livestock, precious and industrial metals,
and energy products. Commodity futures prices have a historically low correlation
with the returns of the stock and bond markets. The Fund’s commodity-linked
investments will not necessarily conform to the composition, weighting, roll dates,
reset dates, or contract months of any particular commodity futures market index.
The Fund’s commodity-linked investments may consist of any combination of
commodity futures contracts, options on commodity futures contracts,
commodity-linked total return swaps, commodity-linked structured notes, and
other commodity-linked instruments or investments.
o Market Neutral Investments. The Fund may invest in Vanguard Market Neutral
Fund, which seeks to provide long-term capital appreciation while limiting
exposure to general stock market risk. The Market Neutral Fund uses multiple
investment advisors, each of which independently selects and maintains a
diversified portfolio of common stocks for the fund. The fund follows a market
neutral strategy, which the fund defines as a strategy designed to produce a
portfolio that is neutral with respect to general stock market risk (sometimes
referred to as beta neutrality). Beta is a measure of a stock’s volatility relative to
the volatility of the general stock market.
Each advisor for the Market Neutral Fund buys equity securities it considers to
be undervalued and sells short securities it considers to be overvalued, in
amounts that it believes will achieve market neutrality. By taking long and short
positions in different securities, the fund attempts to limit the effect of market
movements on portfolio performance. Each advisor uses an independent
security selection process and may emphasize specific industries, styles
(growth/value), capitalization ranges, countries, or other factors. The overall
performance of the fund depends on the net performance of its long and short
positions, and it is possible for the fund to experience a net loss across all
6
positions. If the fund’s investment strategy is successful, however, the net
performance of its long and short positions will produce long-term capital
appreciation that reflects the quality of the advisors’ security selections, with
limited exposure to general stock market risk.
o Investments in an Absolute Return Fund. The Fund may invest in a private
investment fund that Vanguard will establish and manage (the “absolute return
fund”). Vanguard expects that the absolute return fund will seek to generate
capital appreciation over the long term while exhibiting low correlation with the
returns of the U.S. stock market. The absolute return fund is expected to employ
multiple strategies, each of which will seek to produce investment returns that
have two key characteristics: (1) volatility that is similar in magnitude to the
historic volatility of the U.S. stock market; and (2) performance over the long
term comparable to, but independent of the direction and timing of, U.S. stock
returns. Some of the absolute return fund’s strategies may be designed to
capture risk premiums through investment opportunities arising from the
structure, pricing, liquidity, volatility, or other features of the financial markets.
Other strategies employed by the absolute return fund may be designed to take
advantage of relative value differences perceived among securities or across the
financial markets. To the extent that a strategy contemplated for use in the
absolute return fund would be expected to exhibit lower volatility than the
historic volatility of the U.S. stock market, the absolute return fund may use
substantial leverage to amplify the volatility and expected returns of the strategy
to targeted levels.
The absolute return fund’s strategies may be implemented through direct or
indirect investments in stocks, bonds, hybrid securities, commodities, futures
contracts, currencies, and other asset classes or investments. The absolute
return fund may employ leverage, derivatives, short sales, and other complex
investment techniques or transactions as part of its investment program. As of
the date of this prospectus, the Fund had not made a decision to invest in the
absolute return fund in the future. The absolute return fund will not be organized
as a mutual fund that is registered under any federal or state securities laws,
including the Investment Company Act of 1940.
https://personal.vanguard.com/us/Litera ... main=false
User avatar
brick-house
Posts: 475
Joined: Thu May 07, 2009 1:16 pm
Location: Philadelphia, PA

Post by brick-house »

7% payout rate, 9-10% in "other" assets, 4-5% in the Market Neutral Fund, .48% expense ratio???? Now, a filing for an Irish Variable Capital Corporation that employs six market timing strategies and leverage?

Why not use a Target fund for .19% expense ratio and systematically withdraw?
You don't need no gypsy to tell you why- Greg Allman
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Post by Levett »

brick-house asks:

"Why not use a Target fund for .19% expense ratio and systematically withdraw?"

Well, a person might not feel your sensible suggestion is sufficiently "sophisticated." :wink: Bob U.
_________________
There are some things that count that can't be counted, and some things that can be counted that don't count.
User avatar
Kenster1
Posts: 3225
Joined: Wed Feb 28, 2007 9:50 pm

Post by Kenster1 »

Will Vanguard Offer An Absolute Alternative?

http://www.mutualfundwire.com/article.a ... D=2&bhcp=1


Yeah - I think Putnam had the Absolute/Alternative Strategy funds out for a year now but just recently got more exotic with their retirement funds by integrating the exotic fund in them.

http://www.401khelpcenter.com/press_200 ... 92209.html
Putnam Investments Offers Target Date Funds to Integrate Absolute Return Strategies

BOSTON, MA, September 22, 2009 -- Putnam Investments today announced that it has developed the industry's first suite of target date funds that integrate target absolute return strategies with traditional mutual funds.

This significant enhancement to Putnam's existing lineup of target date Putnam RetirementReady® Funds is designed to pursue a higher level of retirement income for investors. The funds will seek to mitigate market volatility and create a more stable sequencing of investment returns by combining target absolute return strategies with more conventional relative return -- or benchmark-focused -- mutual fund strategies.
http://www.mmexecutive.com/news/-200933-1.html
Putnam's Absolute Return Funds Reach $1B

December 16, 2009


Putnam Investments announced Wednesday that its suite of target Absolute Return Funds has surpassed $1 billion in assets, less than a year after they were launched.

“This marks the emergence of a major new category in mutual fund investing in America,” said Putnam President and CEO Robert L. Reynolds. “Reaching this milestone so quickly reflects the very strong appetite in the marketplace for products that are designed to produce more steady investment returns over time to address volatility, longevity, inflation and income concerns."

Reynolds said he thinks absolute return strategies will become a major part of the investment landscape in the coming years and will have a place in 401(k) plans, 529 plans, target-date funds and other savings vehicles.
Vanguard getting seduced in trying to get more exotic?
Last edited by Kenster1 on Thu Jan 28, 2010 1:33 pm, edited 1 time in total.
SURGEON GENERAL'S WARNING: Any overconfidence in your investing ability, willingness and need to take risk may be hazardous to your health.
metalman
Posts: 413
Joined: Mon Dec 21, 2009 8:59 am

Post by metalman »

Although Vanguard Alternate Strategies Fund has a nicer ring to it, per Huey's post, suggest this fund be henceforth referred to here as The Vanguard Hedge Fund.
User avatar
Kenster1
Posts: 3225
Joined: Wed Feb 28, 2007 9:50 pm

Post by Kenster1 »

http://finance.yahoo.com/news/Vanguard- ... l?x=0&.v=1
Vanguard Moves Closer to Offering a Hedge Fund

Vanguard has taken another step toward offering an "absolute return" fund, more than two years after Morningstar first reported that the family was experimenting with a hedge fund.

Vanguard has filed an exemptive relief application with the SEC seeking the OK to launch an absolute return fund (one that attempts to achieve positive returns in all markets) that would be used as a component of the family's Managed Payout Funds. Vanguard essentially wants to create a separate, off-shore alternative strategies fund that would invest in a wide range of alternative strategies at lower cost and with less risk than the Managed Payout Funds could do on their own directly, according to the filing.
"We have been doing a ton of work to see whether it's something we can deliver in a consistent manner, and the jury is very much out at this point," McNabb said. "It's not something we're going to do until we feel really great about it."

Nevertheless, Vanguard is proceeding methodically as if the hedge fund will become a reality. According the filing, each of Vanguard's three Managed Payout Funds (and possibly other Vanguard funds in the future) would invest up to 20% of its assets in the alternative strategies fund.
Vanguard says the alternative strategies offering will provide Managed Payout investors improved diversification and reduced volatility and risk, because the new fund would attempt to have a low correlation to stocks and bonds.

The alternative strategies fund will employ a number of strategies and may invest in stocks, bonds, hybrid securities, commodities, futures contracts, currencies, and other asset classes. It can also use leverage, derivatives, and short sales.
SURGEON GENERAL'S WARNING: Any overconfidence in your investing ability, willingness and need to take risk may be hazardous to your health.
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Post by Levett »

Not my idea of a "must have."

This is not the Vanguard I started using nearly 30 years ago.

Must be for the "SO-phisticated." :cry:

Bob U.
There are some things that count that can't be counted, and some things that can be counted that don't count.
stevenst
Posts: 60
Joined: Mon Jun 22, 2009 1:28 am

Post by stevenst »

It has SIX alternative strategies (one of which is unused). I guess they drag out 'Big #6' when the going gets weird.

I'm too dumb to understand it. So, I gotta go with my rule of 'if I don't understand it, I don't buy it'.

Steve
User avatar
nisiprius
Advisory Board
Posts: 52212
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Post by nisiprius »

I hope the SEC turns them down. Good grief.

Why is the Alternative Investments Fund organized in Ireland? Is there some obvious reason, other than whatever it's doing wouldn't quite be legal in the U. S.?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
slick_dealer_05
Posts: 420
Joined: Tue Jul 24, 2007 8:16 pm

Post by slick_dealer_05 »

Soon we will see Vanguard morphing into a hedge fund. As a shareholder, I wish I could vote this fund down. Vanguard management- Wake up, and know thy customers.
User avatar
BigD53
Posts: 1042
Joined: Sat Jul 21, 2007 7:47 pm

Post by BigD53 »

A hedge fund?

The (Vanguard) world as we know it, is coming to an end. :roll:
jsnbrnd
Posts: 417
Joined: Tue Dec 11, 2007 3:25 pm

Post by jsnbrnd »

nisiprius wrote:
Why is the Alternative Investments Fund organized in Ireland? Is there some obvious reason, other than whatever it's doing wouldn't quite be legal in the U. S.?
Because Ireland is he home of the Blarney Stone.
CaveatEmptor
Posts: 397
Joined: Wed Dec 31, 2008 11:48 pm

Post by CaveatEmptor »

This is bad but it is only the third dumbest idea to come out of Vanguard. The dumbest has got to be their decision, back in 1998, to offer a market-neutral fund VMNFX (going long some stocks and short some others -- as if really smart people can tell the good stocks from the bad ones, and as if Vanguard can identify these really smart people). The second dumbest management decision at Vanguard has been one of omission rather than commission: To shun many legitimate asset classes that you see offered by DFA and PIMCO.

Most of my money is in Vanguard funds, but if DFA some day makes its funds available without having to go through a "financial advisor", I'd move a good chunk of my money from Vanguard funds to DFA funds (around 20% of it).
User avatar
stratton
Posts: 11085
Joined: Sun Mar 04, 2007 4:05 pm
Location: Puget Sound

Post by stratton »

Vanguard didn't offer a market neutral fund in 1998. They bought it from Laudus-Rosenberg in I believe 2007.

Laudus-Rosenberg used to be a sub-advistor to the fund.

Paul
CaveatEmptor
Posts: 397
Joined: Wed Dec 31, 2008 11:48 pm

Post by CaveatEmptor »

stratton wrote:Vanguard didn't offer a market neutral fund in 1998. They bought it from Laudus-Rosenberg in I believe 2007.

Laudus-Rosenberg used to be a sub-advistor to the fund.

Paul
Interesting -- so the 1998 "inception date" listed on the Vanguard web site is really its inception by the LR-folks. I think they're still sub-advising it even though they have a slightly different name (AXA-Rosenberg).
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Post by Levett »

It's fascinating to observe Vanguard's Hedge fund ('cause that's what it is) in light of Mr. Bogle's very recent public disagreement as reported by Morningstar.

I quote from Morningstar:

"Bogle and Sauter Square Off on WSJ Op-ed Page
Jack Bogle, the retired founder of Vanguard, and Gus Sauter, the firm's chief investment officer, have voiced different opinions on a proposed federal transfer securities transaction tax.
A bill introduced in the House of Representatives would impose a 0.25% tax on most security transactions outside of tax-exempt retirement, health savings, and education accounts.
Proponents say the legislation could raise more than $100 billion a year to reduce the federal deficit and support new jobs. For more about this bill, click here.
The bill would end up costing shareholders of lower turnover mutual funds, like index funds, far less than shareholders of funds with higher turnover, such as many quantitative strategies.
This may be why Bogle suggested in a Tuesday Wall Street Journal op-ed that policy makers should consider such a proposal. He wrote such a tax could "enhance the role of investors and diminish the role of speculators."
The tax wasn't the main thrust of Bogle's article. It was among other proposals including a proposed "federal principal of fiduciary duty" that would get investment managers to start behaving more like shareholders. Such a standard, Bogle argues, could help to reduce fund fees and executive compensation at large corporations.

Bogle's editorial is in sharp contrast to an editorial written just a few weeks earlier by Sauter on the same subject.
In his editorial, Sauter, along with co-author Burton Malkiel, concluded a securities transactions tax would "gravely wound financial markets." Sauter thinks such a tax could make market bubbles even worse and that so-called "speculators" play an important role in improving market efficiency.
If you trade more than $100,000 worth of stocks or options a year, you could be affected by the proposed bill. Do you think a transaction tax makes sense?"


(N.B.: I added the boldface.)

It's obvious that current Vanguard management has a real quant (speculative?) bias--something Mr. Bogle neither cares for nor sees the need for.

All of this reminds me of an expression my parents used to use about "getting too smart for your britches." :wink: Bob U.
There are some things that count that can't be counted, and some things that can be counted that don't count.
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Post by Levett »

Apologies for the double post!


It's fascinating to observe Vanguard's Hedge fund ('cause that's what it is) in light of Mr. Bogle's very recent public disagreement as reported by Morningstar.

I quote from Morningstar:

"Bogle and Sauter Square Off on WSJ Op-ed Page
Jack Bogle, the retired founder of Vanguard, and Gus Sauter, the firm's chief investment officer, have voiced different opinions on a proposed federal transfer securities transaction tax.
A bill introduced in the House of Representatives would impose a 0.25% tax on most security transactions outside of tax-exempt retirement, health savings, and education accounts.
Proponents say the legislation could raise more than $100 billion a year to reduce the federal deficit and support new jobs. For more about this bill, click here.
The bill would end up costing shareholders of lower turnover mutual funds, like index funds, far less than shareholders of funds with higher turnover, such as many quantitative strategies.
This may be why Bogle suggested in a Tuesday Wall Street Journal op-ed that policy makers should consider such a proposal. He wrote such a tax could "enhance the role of investors and diminish the role of speculators."
The tax wasn't the main thrust of Bogle's article. It was among other proposals including a proposed "federal principal of fiduciary duty" that would get investment managers to start behaving more like shareholders. Such a standard, Bogle argues, could help to reduce fund fees and executive compensation at large corporations.

Bogle's editorial is in sharp contrast to an editorial written just a few weeks earlier by Sauter on the same subject.
In his editorial, Sauter, along with co-author Burton Malkiel, concluded a securities transactions tax would "gravely wound financial markets." Sauter thinks such a tax could make market bubbles even worse and that so-called "speculators" play an important role in improving market efficiency.
If you trade more than $100,000 worth of stocks or options a year, you could be affected by the proposed bill. Do you think a transaction tax makes sense?"


(N.B.: I added the boldface.)

It's obvious that current Vanguard management has a real quant (speculative?) bias--something Mr. Bogle neither cares for nor sees the need for.

All of this reminds me of an expression my parents used to use about "getting too smart for your britches." :wink: Bob U.
There are some things that count that can't be counted, and some things that can be counted that don't count.
Tramper Al
Posts: 3665
Joined: Thu Oct 18, 2007 11:42 am

Post by Tramper Al »

stratton wrote:Vanguard didn't offer a market neutral fund in 1998. They bought it from Laudus-Rosenberg in I believe 2007.

Laudus-Rosenberg used to be a sub-advistor to the fund.
Right. I have always found it interesting that the performance numbers for Vanguard Market Neutral go right on back past the date of Vanguard's involvement. But of course performance since the acquisition date has been rather remarkable as well.

But that brings me to another possibility for this new Vanguard Alternatives Strategies Fund. I wonder if part of the plan may be to merge the (fairly small) Market Neutral fund right into this new entity? One advantage would that Vanguard would not have to continue displaying the rather disappointing VMNFX returns. Prospective investors in the Managed Payout funds, particularly, would not see those past returns anymore. Just a thought.
User avatar
Kenster1
Posts: 3225
Joined: Wed Feb 28, 2007 9:50 pm

Post by Kenster1 »

Nobody interested in Vanguard being the lowest cost Hedge Fund provider? :oops:

How about a LifeStrategy Endowment Fund incorporating these alternative strategies?
Last edited by Kenster1 on Fri Jan 29, 2010 12:15 pm, edited 1 time in total.
SURGEON GENERAL'S WARNING: Any overconfidence in your investing ability, willingness and need to take risk may be hazardous to your health.
User avatar
Doc
Posts: 10607
Joined: Sat Feb 24, 2007 12:10 pm
Location: Two left turns from Larry

Post by Doc »

Morningstar:
Vanguard Moves Closer to Offering a Hedge Fund
http://news.morningstar.com/articlenet/ ... ?id=324037
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
Chuck
Posts: 2505
Joined: Thu May 21, 2009 12:19 pm

Post by Chuck »

slick_dealer_05 wrote:Soon we will see Vanguard morphing into a hedge fund. As a shareholder, I wish I could vote this fund down. Vanguard management- Wake up, and know thy customers.
Thankfully, because of Vanguard's corporate structure, the "Vanguard Hedge Fund" doesn't bother you (financially) in the least. It can succeed or fail without affecting any of the other funds, each of which are their own separate corporation.

http://www.bogleheads.org/wiki/Vanguard_FAQ
Graybeard
Posts: 26
Joined: Sat Dec 13, 2008 10:37 pm
Location: Utah

Vanguard has filed for exemptive relief

Post by Graybeard »

Glad to see this myself, I like the way VG does business and would like to see them offer a wide variety of investment vehicles. I won't be investing in all of them, but it's nice to have alternatives available from a company I trust.
User avatar
Yuba
Posts: 298
Joined: Tue Feb 20, 2007 10:52 pm
Location: Orange County, CA

Post by Yuba »

nisiprius wrote:Why is the Alternative Investments Fund organized in Ireland? Is there some obvious reason, other than whatever it's doing wouldn't quite be legal in the U. S.?
There are many roads to Dublin?? <grin>

Rick dba Yuba
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Post by Levett »

Hi Yuba,

It's been some years since I've driven in Ireland, but I recollect an awful lot of narrow, windy lanes, and it can be especially risky driving "in the dark," so to speak. :D

No doubt, Vanguard thinks it has an especially accurate GPS. :wink: Bob U.
There are some things that count that can't be counted, and some things that can be counted that don't count.
User avatar
Drain
Posts: 1404
Joined: Mon Feb 26, 2007 12:27 pm
Location: Maryland

Post by Drain »

Oh, the horror. Vanguard wants to add alternative investments, presumably with low correlation to the more conventional assets already in the managed payout fund. They must be nuts. I mean, why would a managed payout fund want to take extra steps to control volatility? It's just crazy!
Darin
User avatar
brick-house
Posts: 475
Joined: Thu May 07, 2009 1:16 pm
Location: Philadelphia, PA

Post by brick-house »

Drain wrote:
Oh, the horror. Vanguard wants to add alternative investments, presumably with low correlation to the more conventional assets already in the managed payout fund. They must be nuts. I mean, why would a managed payout fund want to take extra steps to control volatility? It's just crazy!
Maybe John Ameriks has been reading Harry Browne. It would be neat if this Irish Variable Capital Corporation adds gold and long term treasuries. That would add some low correlation to the more conventional assets.

I do not own the Managed Payout Funds, but admit I am getting a kick out of the marketing and management of these offerings. It is fun to watch Vanguard experiment with other people's money.
You don't need no gypsy to tell you why- Greg Allman
maj
Posts: 488
Joined: Wed Jun 25, 2008 2:58 pm

Post by maj »

Kenster 1,

Right on with an expansion of Lifestrategy funds to include an endowment fund.
However, still does not solve the problem of having Asset Allocation Fund occupy 25% of LS funds' allocations.
Just increasing the international equity in the LS funds would be a major diversifier.
peace
maj
User avatar
Drain
Posts: 1404
Joined: Mon Feb 26, 2007 12:27 pm
Location: Maryland

Post by Drain »

brick-house wrote:Maybe John Ameriks has been reading Harry Browne. It would be neat if this Irish Variable Capital Corporation adds gold and long term treasuries. That would add some low correlation to the more conventional assets.
Gold and treasurys aren't alternative investments--a fund doesn't need special permission (or to be domiciled in another country) to buy them. I'd think we're talking about derivatives, synthetics, and the like. You know...securities you don't normally find in a U.S. mutual fund.

Access to something like a hedge fund sounds like a great idea for a mutual fund that's forced to make large, regular distributions. You want to keep volatility as low as reasonably possible in that case, and the ordinary investments usually discussed here aren't optimal for that. Keep in mind that there's nothing intrinsically wrong with a hedge fund. The typical hedge fund is very expensive for its investors, but the Vanguard AS fund would not be. And if it's managed with the objective of diversifying the managed payout fund, as opposed to something like maximum growth or whatever, then you really can't beat it with anything else out there.
Darin
User avatar
brick-house
Posts: 475
Joined: Thu May 07, 2009 1:16 pm
Location: Philadelphia, PA

Post by brick-house »

drain wrote:
I'd think we're talking about derivatives, synthetics, and the like. You know...securities you don't normally find in a U.S. mutual fund.
Derivatives, synthetics, and leverage! Where was that in the original marketing of these funds? It is a long way from the marketing video of John Ameriks showing stocks and bonds being negatively correlated.

It seems like Vanguard just realized that a hedge fund is necessary to reduce volatility in a managed payout scheme. Maybe they read Jim Otar's book and realized the impact of a sideways market on distribution schemes.

Who is to say that the Vanguard Irish Variable Capital Corporation's six strategies utilizing leverage, derivatives, synthetics, etc. will be managed well. Hopefully, it will have better results than the Market Neutral Fund. I thought the idea behind a hedge fund was to collect 2% and 20% of the profits until it blows up, lay low for a few years, then start another one.

Hope it works well. I am enjoying watching this evolving managed payout experiment.
You don't need no gypsy to tell you why- Greg Allman
User avatar
alec
Posts: 3181
Joined: Fri Mar 02, 2007 1:15 pm

Post by alec »

Vanguard needs to create ETFs for the managed payout funds, so I can short them. :wink:
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Post by Levett »

Alec,

Perhaps you'd prefer leveraged ETFs? :wink: Bob U.
There are some things that count that can't be counted, and some things that can be counted that don't count.
User avatar
nisiprius
Advisory Board
Posts: 52212
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Post by nisiprius »

I need steady, reliable, lasting heat to cook my backyard meals from beginning to end. When I was unsophisticated I used a simple textbook mix of charcoal and lighter fluid, but I wasn't happy with the volatility of the lighter fluid. I plan to reduce that volatility by adding dryer lint, cooking fat, fuel oil, nitrate fertilizer, gasoline, phosphorus and match heads. Because they all are chemically different, I will be diversified. Modern Pyromania Theory (MPT) predicts that some are bound to be igniting whenever others are cooling down. So I will be able to cook more food, at a steadier temperature, for longer. What could possibly go wrong?

P. S. I forgot precious metals. I'd better put in some magnesium.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
stratton
Posts: 11085
Joined: Sun Mar 04, 2007 4:05 pm
Location: Puget Sound

Post by stratton »

This isn't a "real" hedge fund.

A "real" hedge fund doesn't need to ask the SEC for permission to do anything as long as they sell to "accredited" (?) investors except maybe register that they exist with the SEC. They do have to follow securities laws and make appropriate filings.

What Vanguard is filing for is a mutual fund version of a hedge fund which has to follow all kinds of typical mutual fund rules and restrictions. They are way more restricted than a "real" hedge fund.

An example would be the CGM Focus fund (CGMFX) which can pretty much do anything Ken Heebner want's too.

Paul
User avatar
Drain
Posts: 1404
Joined: Mon Feb 26, 2007 12:27 pm
Location: Maryland

Post by Drain »

A friend's response sums up my feelings:

"This sounds like Vanguard returning to what it should be. Offering investment vehicles at much lower expense ratios. Hedge funds charging 70 basis points instead of 220 would be wonderful."

This IS what Vanguard should be doing. Providing a set of index funds for the core of a typical portfolio is important, and Vanguard does a great job of it, but investors have other needs to meet, as well. The portfolio that the average Boglehead sees as prudent and proper is, to a large extent, the flavor of the day. What is being recommended now is not exactly what was recommended 10 years ago, and is not exactly what will be recommended 10 years from now. Furthermore, it's a big world out there. There are plenty of investors who see the need for alternative asset classes, but these investors don't feel they can actually buy those assets because of high costs. Well, who better to address that problem than Vanguard?

Are Bogleheads really so provincial that they believe they have all the right answers and that anyone who doesn't agree must be a fool? Assuming not, then I don't see the objection to Vanguard offering as wide a selection of low-cost funds as possible.
Darin
dumbmoney
Posts: 2419
Joined: Sun Mar 16, 2008 8:58 pm

Post by dumbmoney »

stratton wrote:This isn't a "real" hedge fund.

A "real" hedge fund doesn't need to ask the SEC for permission to do anything as long as they sell to "accredited" (?) investors except maybe register that they exist with the SEC. They do have to follow securities laws and make appropriate filings.

What Vanguard is filing for is a mutual fund version of a hedge fund which has to follow all kinds of typical mutual fund rules and restrictions. They are way more restricted than a "real" hedge fund.
The Alternative Strategies Fund is a sub-fund of an umbrella fund5 known as Vanguard Investments Select Series I, PLC, which is organized in Ireland as a limited liability Variable Capital Corporation (“VCC”), a type of Irish investment company. Because the Alternative Strategies Fund uses non-traditional strategies and instruments, it has been established as a VCC that is a Qualified Investment Fund (commonly known as a “QIF”), a type of fund available only to high net worth individuals and institutional investors. The fund will be regulated by the Irish Financial Services Regulatory Authority (the “FSR”) and will comply with Irish securities and other applicable laws.
The Alternative Strategies Fund will offer and sell its securities to the Managed Payout Funds, and possibly to other U.S. persons, in private offerings under Section 3(c)(7) of the Act. Section 3(c)(7) excepts from the definition of “investment company” any fund (i) that is owned exclusively by persons who, at the time they acquire ownership, are “qualified purchasers,”7 and (ii) that is not making and does not propose to make a public offering of its securities. The Alternative Strategies Fund may simultaneously conduct offshore public or private offerings to non-U.S. persons (who may not be qualified purchasers) without using any means or instrumentality of interstate commerce in the United States.
I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.
User avatar
brick-house
Posts: 475
Joined: Thu May 07, 2009 1:16 pm
Location: Philadelphia, PA

Post by brick-house »

If Vanguard only charges 70 basis points and no percentage of the profits; then how will they be able to attract the worldly, non-provincial, and sophisticated “talent” necessary to employ these alternative strategies? Once hired, do we know for certain whether this cheap hire will flourish or flounder? Vanguard’s recent long-short market neutral hiring does not instill me with confidence.

I am so provincial that I buy the products that an organization excels at producing and servicing. Vanguard excels at providing and servicing low cost index funds, etfs, and actively managed mutual funds. If Vanguard wants to experiment with other areas such as brokerage, AIG annuities, market neutral funds, hedge funds, etc.; then god bless. I will observe, but not purchase.

I am also a provincial sports fan. I root for Penn State, Big Five Basketball, and the Philly Pro Teams. I root for Vanguard as well. Just like the sports teams, I criticize and second guess their decisions. For me these Managed Payout Funds criticisms are the equivalent of yelling at a Joe Paterno or Charlie Manuel strategic decision. Vanguard knows way more about their business than me, but I enjoy complaining.
You don't need no gypsy to tell you why- Greg Allman
User avatar
stratton
Posts: 11085
Joined: Sun Mar 04, 2007 4:05 pm
Location: Puget Sound

Post by stratton »

dumbmoney wrote:
The Alternative Strategies Fund is a sub-fund of an umbrella fund5 known as Vanguard Investments Select Series I, PLC, which is organized in Ireland as a limited liability Variable Capital Corporation (“VCC”), a type of Irish investment company. Because the Alternative Strategies Fund uses non-traditional strategies and instruments, it has been established as a VCC that is a Qualified Investment Fund (commonly known as a “QIF”), a type of fund available only to high net worth individuals and institutional investors. The fund will be regulated by the Irish Financial Services Regulatory Authority (the “FSR”) and will comply with Irish securities and other applicable laws.
Tell's you how much I can screw something up. :oops:

My comment about the SEC registration still stands. In this case all the SEC registration process is becuase it will be bought by managed payout funds which are mutual funds.

Paul
User avatar
jeff mc
Posts: 2735
Joined: Mon Feb 19, 2007 8:42 pm
Location: minnesota
Contact:

Post by jeff mc »

i came across this... interesting perspective.

http://www.ft.com/cms/s/0/7711f854-1287 ... ck_check=1
Posters on the Bogleheads forum, part of an investment website “inspired by the example of Jack Bogle” (Vanguard founder), were alarmed. “The (Vanguard) world as we know it is coming to an end,” said one.
User avatar
nisiprius
Advisory Board
Posts: 52212
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Vanguard files for exemptive relief:

Post by nisiprius »

Anyone know whatever happened regarding this? As of the September, 2011 quarterly schedule of investments,

http://www.sec.gov/Archives/edgar/data/ ... _final.htm

the Managed Payout funds seem to hold:

--NO holdings of any "Vanguard Alternative Strategies Fund" (the Irish hedge fund)

--NO obvious holdings of any commodities, commodities funds, commodities swap agreements or commodities anything

--Just Total Stock, REIT Index, Total International, Total Bond, Market Neutral--and 11.7% in "temporary cash investments!"



Investment Companies (88.9%)
U.S. Stock Funds (37.1%)
Vanguard Total Stock Market Index Fund Investor Shares 4,106,276 115,263
Vanguard REIT Index Fund Investor Shares 2,414,081 40,774
156,037
International Stock Fund (11.8%)
Vanguard Total International Stock Index Fund Investor Shares 3,843,269 49,655

Bond Fund (19.8%)
1 Vanguard Total Bond Market II Index Fund Investor Shares 7,620,375 83,367

Market Neutral Fund (20.2%)
* Vanguard Market Neutral Fund Investor Shares 8,198,879 84,695

Total Investment Companies (Cost $384,671) 373,754

Temporary Cash Investments (11.7%)2
Money Market Fund (10.3%)
1 Vanguard Market Liquidity Fund, 0.144% 43,298,930 43,299


Face
Amount
($000)

U.S. Government and Agency Obligations (1.4%)
3 Fannie Mae Discount Notes, 0.030%, 10/26/11 750 750
3 Fannie Mae Discount Notes, 0.025%, 12/28/11 1,000 1,000
3 Fannie Mae Discount Notes, 0.050%, 12/5/11 2,000 1,999
3 Federal Home Loan Bank Discount Notes, 0.025%, 12/9/11 1,900 1,899
5,648
Total Temporary Cash Investments (Cost $48,948) 48,947
Total Investments (100.6%) (Cost $433,619) 422,701
Other Assets and Liabilities-Net (-0.6%) (2,525)
Net Assets (100%) 420,176
Last edited by nisiprius on Sat Jan 28, 2012 3:52 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
CaveatEmptor
Posts: 397
Joined: Wed Dec 31, 2008 11:48 pm

Re: Vanguard files for exemptive relief:

Post by CaveatEmptor »

Nisiprius: In the Edgar page you provided, search for "effective commodity" and you will see that each of the three Vanguard managed payout funds has around 10% allocated to commodity futures.
ladders11
Posts: 886
Joined: Fri Nov 14, 2008 3:20 pm

Re: Vanguard files for exemptive relief:

Post by ladders11 »

.....
Last edited by ladders11 on Sat Jan 21, 2023 2:04 pm, edited 1 time in total.
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Vanguard files for exemptive relief:

Post by abuss368 »

I would have to believe if Mr. Bogle was still stearing the Vanguard ship, he would have never approved or launched these managed funds.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
nisiprius
Advisory Board
Posts: 52212
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Vanguard files for exemptive relief:

Post by nisiprius »

CaveatEmptor wrote:Nisiprius: In the Edgar page you provided, search for "effective commodity" and you will see that each of the three Vanguard managed payout funds has around 10% allocated to commodity futures.
Thanks.

So, do those have any connection with Vanguard Alternative Strategies Fund? Or is it "commodity futures are there, Vanguard Alternate Strategies Fund is absent?"
Last edited by nisiprius on Sat Jan 28, 2012 3:53 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Post Reply