Vanguard files for exemptive relief:

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Vanguard files for exemptive relief:

Postby Barry Barnitz » Thu Jan 28, 2010 6:50 am

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,
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Postby Levett » Thu Jan 28, 2010 7:32 am

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.
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Re: Vanguard files for exemptive relief:

Postby HueyLD » Thu Jan 28, 2010 7:45 am

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.
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Postby Levett » Thu Jan 28, 2010 10:18 am

Huey,

The times require repetition! :D

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Re: Vanguard files for exemptive relief:

Postby Paladin » Thu Jan 28, 2010 10:40 am

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,


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Postby Beagler » Thu Jan 28, 2010 10:45 am

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

Thankfully they still run their index funds well.
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Postby Tramper Al » Thu Jan 28, 2010 10:53 am

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.
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Postby HueyLD » Thu Jan 28, 2010 11:05 am

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
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Postby brick-house » Thu Jan 28, 2010 11:11 am

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?
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Postby Levett » Thu Jan 28, 2010 11:40 am

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.
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Postby Kenster1 » Thu Jan 28, 2010 2:57 pm

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?
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Postby metalman » Thu Jan 28, 2010 3:18 pm

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.
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Postby Kenster1 » Thu Jan 28, 2010 7:38 pm

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.
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Postby Levett » Thu Jan 28, 2010 8:51 pm

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:

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Postby stevenst » Thu Jan 28, 2010 10:05 pm

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'.

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Postby nisiprius » Thu Jan 28, 2010 10:55 pm

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.?
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Postby slick_dealer_05 » Thu Jan 28, 2010 11:36 pm

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.
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Postby BigD53 » Fri Jan 29, 2010 12:13 am

A hedge fund?

The (Vanguard) world as we know it, is coming to an end. :roll:
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Postby jsnbrnd » Fri Jan 29, 2010 12:38 am

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.
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Postby CaveatEmptor » Fri Jan 29, 2010 1:43 am

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).
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Postby stratton » Fri Jan 29, 2010 4:13 am

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
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Postby CaveatEmptor » Fri Jan 29, 2010 4:56 am

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).
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Postby Levett » Fri Jan 29, 2010 7:40 am

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.
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Postby Levett » Fri Jan 29, 2010 7:44 am

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.
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Postby Tramper Al » Fri Jan 29, 2010 9:57 am

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.
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Postby Kenster1 » Fri Jan 29, 2010 11:12 am

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

How about a LifeStrategy Endowment Fund incorporating these alternative strategies?
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Postby Doc » Fri Jan 29, 2010 11:41 am

Morningstar:
Vanguard Moves Closer to Offering a Hedge Fund

http://news.morningstar.com/articlenet/ ... ?id=324037
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Postby Chuck » Fri Jan 29, 2010 11:55 am

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
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Vanguard has filed for exemptive relief

Postby Graybeard » Fri Jan 29, 2010 2:04 pm

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.
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Postby Yuba » Fri Jan 29, 2010 2:13 pm

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>

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Postby Levett » Fri Jan 29, 2010 3:26 pm

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.
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Postby Drain » Fri Jan 29, 2010 4:32 pm

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!
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Postby brick-house » Fri Jan 29, 2010 4:54 pm

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.
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Postby maj » Fri Jan 29, 2010 6:03 pm

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.
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Postby Drain » Fri Jan 29, 2010 6:20 pm

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.
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Postby brick-house » Fri Jan 29, 2010 6:47 pm

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.
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Postby alec » Fri Jan 29, 2010 8:28 pm

Vanguard needs to create ETFs for the managed payout funds, so I can short them. :wink:
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Postby Levett » Fri Jan 29, 2010 8:45 pm

Alec,

Perhaps you'd prefer leveraged ETFs? :wink: Bob U.
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Postby nisiprius » Fri Jan 29, 2010 9:25 pm

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.
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Postby stratton » Sat Jan 30, 2010 4:48 am

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.

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Postby Drain » Sat Jan 30, 2010 12:34 pm

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.
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Postby dumbmoney » Sat Jan 30, 2010 1:08 pm

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.
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Postby brick-house » Sat Jan 30, 2010 3:10 pm

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.
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Postby stratton » Sat Jan 30, 2010 6:52 pm

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.

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Postby jeff mc » Sun Feb 07, 2010 10:22 am

i came across this... interesting perspective.

http://www.ft.com/cms/s/0/7711f854-1287-11df-a611-00144feab49a.html?nclick_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.
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Re: Vanguard files for exemptive relief:

Postby nisiprius » Wed Jan 25, 2012 10:02 pm

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 5:52 pm, edited 1 time in total.
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Re: Vanguard files for exemptive relief:

Postby CaveatEmptor » Thu Jan 26, 2012 12:00 am

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.
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Re: Vanguard files for exemptive relief:

Postby ladders11 » Thu Jan 26, 2012 12:35 am

This is a two year old thread, but most people are missing the point entirely. To me, Vanguard seems to have setup the fund in Ireland as a vehicle for the managed payout funds to invest in commodities. The open mutual funds that invest in commodities have been offshoring in order to legally avoid CFTC regulations. Look at the fund RYMFX and you will find their largest holding is a fund in the Cayman Islands. This was not always the case, but something about the CFTC caused them to shift their investments into a subsidiary setup overseas. There was no "Vanguard hedge fund".

We can also thank clueless reporters for this overreaction.
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Re: Vanguard files for exemptive relief:

Postby abuss368 » Thu Jan 26, 2012 7:13 pm

I would have to believe if Mr. Bogle was still stearing the Vanguard ship, he would have never approved or launched these managed funds.
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Re: Vanguard files for exemptive relief:

Postby nisiprius » Thu Jan 26, 2012 8:34 pm

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 5:53 pm, edited 1 time in total.
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