Vanguard to offer private equity investments? Thoughts?

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Bitzer
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Vanguard to offer private equity investments? Thoughts?

Post by Bitzer » Sun Jun 23, 2019 7:01 am

This news item is reported in the online edition of today's Wall Street Journal

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Tycoon
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Re: Vanguard to offer private equity investments? Thoughts?

Post by Tycoon » Sun Jun 23, 2019 7:25 am

I'm indifferent about the offering. I'm am starting to question Vanguard's business plan.
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Re: Vanguard to offer private equity investments? Thoughts?

Post by HomeStretch » Sun Jun 23, 2019 7:36 am

Here’s the link to the article:
https://www.wsj.com/amp/articles/indexi ... 1561287602

No thoughts on this as no specifics given in article aside from evaluation is preliminary and it would be available only to institutions and high net worth PAS clients.

ETA: try googling “vanguard private equity” to read article without paywall. I read the article via google. But the link I posted above has the article behind a paywall.
Last edited by HomeStretch on Sun Jun 23, 2019 8:44 am, edited 1 time in total.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by HEDGEFUNDIE » Sun Jun 23, 2019 7:43 am

Here is the key rationale from the article:
In a decade marked by his­tor­i­cally low in­ter­est rates, re­turn-starved pen­sions and sov­ereign wealth funds have poured money into pri­vate mar­kets. The move is re­shap­ing cap­i­tal mar­kets with the num­ber of ini­tial pub­lic of­fer­ings in the U.S. down sharply from a high in the 1990s. The di­min­ish­ing pub­lic mar­kets raises ques­tions about whether smaller in­sti­tu­tions and every­day in­vestors are get­ting left out of a bur­geon­ing source of wealth.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by trustquestioner » Sun Jun 23, 2019 7:52 am

Private companies are currently very highly levered, with leveraged loans (definition is something like >6x EBITDA) dominating the worry list of regulators. Obviously every fund is different but I question how much of an edge these “we target middle market firms with $10-$100 million of EBITDA and a strong competitive advantage” guys could possibly have. It sure seems like the only viable exit story is flipping to another PE firm. And we haven’t had a recession in a long time, won’t be pretty for these portfolios when the inevitable happens.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by hdas » Sun Jun 23, 2019 8:16 am

Bitzer wrote:
Sun Jun 23, 2019 7:01 am
This news item is reported in the online edition of today's Wall Street Journal
It’s about time. This is a win for the little guy :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: Vanguard to offer private equity investments? Thoughts?

Post by nedsaid » Sun Jun 23, 2019 8:28 am

I can't access the article.
A fool and his money are good for business.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by stan1 » Sun Jun 23, 2019 9:02 am

nedsaid wrote:
Sun Jun 23, 2019 8:28 am
I can't access the article.
Google "vanguard private equity"

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JoMoney
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Re: Vanguard to offer private equity investments? Thoughts?

Post by JoMoney » Sun Jun 23, 2019 9:16 am

Tycoon wrote:
Sun Jun 23, 2019 7:25 am
I'm indifferent about the offering. I'm am starting to question Vanguard's business plan.
Charlie Munger's Iron rule of nature: "You get what you reward for"

Vanguard employees get a bonus dividend from something called the "Vanguard Partnership Plan". Much of what's known about this plan is held pretty tight-lipped, but John Bogle has commented before about it's objectives, and a Philidelphia newspaper frequently posts articles speculating on how it's going.
The payout grows when Vanguard garners more assets under management, and when those assets are in funds where Vanguard offers lower expenses than competitors. It seems to me Vanguard's advantage in the space of broad-market U.S. index funds is getting pretty tight. If they want their bonus to grow, they need more AUM in things Vanguard can do cheaper. It's entirely speculation on my part, but I do wonder if Vanguard's push for international and putting international bonds into target-date funds isn't (at least a little bit) motivated by the lower marginal expenses Vanguard offers in this space, and by the structure of their reward system.
I think the plan is a pretty good structure and generally in the interest of Vanguard clients, but there are always principle-agent issues. Seeing Vanguard products that may not be appropriate investments for everyone, but that Vanguard can (or at least they believe they can) do cheaper, doesn't surprise me... It fits my belief of their motivations...
The Philadelphia Inquirer: Vanguard’s partnership profits for execs, employees rose 14.1 percent in 2018
John Bogle, in a 2003 speech wrote: http://johncbogle.com/speeches/JCB_SHRM0403.pdf
... Through the Vanguard Partnership Plan, each and every member of our crew shares in the rewards we generate for our shareholders. I know of no other company in which every member of the workforce—without putting up one cent of capital—shares in its earnings.
These earnings are derived from:
(1) our low-cost advantage (that is, our fund expense ratios relative to those of our major competitors);
(2) the extent to which our fund performance exceeds or falls short of the returns of our competitors; and
(3) the size of our asset base
.
So as our assets have grown, as our cost advantage has increased, and as the returns of our funds have exceeded those of their peers, our earnings have grown—substantially! Each crewmember holds a certain number of units, based largely on years of service and job grade level, and each June receives a check that now typically approaches 35% or more of annual compensation ...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Vanguard to offer private equity investments? Thoughts?

Post by columbia » Sun Jun 23, 2019 9:48 am

Seeing Vanguard products that may not be appropriate investments for everyone, but that Vanguard can (or at least they believe they can) do cheaper, doesn't surprise me.
I wonder if VG would offer a “warning” like they do for EDV:
The fund is primarily intended for institutional investors with extremely long-term liabilities—20 years or more. Prospective individual investors are urged to consult with their own advisors to determine if the fund is suitable for their overall investment programs and financial positions.
The language/intent would obviously be different, since the whole point would be to provide private equity access to individuals.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by JoMoney » Sun Jun 23, 2019 9:59 am

columbia wrote:
Sun Jun 23, 2019 9:48 am
Seeing Vanguard products that may not be appropriate investments for everyone, but that Vanguard can (or at least they believe they can) do cheaper, doesn't surprise me.
I wonder if VG would offer a “warning” like they do for EDV:
The fund is primarily intended for institutional investors with extremely long-term liabilities—20 years or more. Prospective individual investors are urged to consult with their own advisors to determine if the fund is suitable for their overall investment programs and financial positions.
The language/intent would obviously be different, since the whole point would be to provide private equity access to individuals.
Are you sure the "whole point would be to provide private equity access to individuals"? Their are regulations that already make that prohibitive.
From the article:
... Vanguard has told private-equity executives it is considering offering private-markets strategies to clients of its advisory services, two people said. Its focus would likely be institutions and high-net-worth clients it advises, one person said.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Vanguard to offer private equity investments? Thoughts?

Post by columbia » Sun Jun 23, 2019 10:01 am

I’m not anymore. :D

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Re: Vanguard to offer private equity investments? Thoughts?

Post by nedsaid » Sun Jun 23, 2019 10:18 am

stan1 wrote:
Sun Jun 23, 2019 9:02 am
nedsaid wrote:
Sun Jun 23, 2019 8:28 am
I can't access the article.
Google "vanguard private equity"
Okay, found the article and was able to read it. Thanks.

Sounds like Vanguard is considering offering private equity through its Personal Advisory Service.

Let's see, maybe Vanguard will offer Alternative Lending, Reinsurance, and Variance Risk Premium through advisors as well. Just kidding there, but I am sure Mr. Bogle wouldn't be happy with this. The nightmare would be if they hired Larry as their director of research. :wink:

It sounds like this is in response to a shrinking public stock market.
A fool and his money are good for business.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by EddyB » Sun Jun 23, 2019 10:20 am

hdas wrote:
Sun Jun 23, 2019 8:16 am
Bitzer wrote:
Sun Jun 23, 2019 7:01 am
This news item is reported in the online edition of today's Wall Street Journal
It’s about time. This is a win for the little guy :greedy
I am pretty sure that it’s a win for the PE folks.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by Valuethinker » Sun Jun 23, 2019 10:23 am

trustquestioner wrote:
Sun Jun 23, 2019 7:52 am
Private companies are currently very highly levered, with leveraged loans (definition is something like >6x EBITDA) dominating the worry list of regulators. Obviously every fund is different but I question how much of an edge these “we target middle market firms with $10-$100 million of EBITDA and a strong competitive advantage” guys could possibly have. It sure seems like the only viable exit story is flipping to another PE firm. And we haven’t had a recession in a long time, won’t be pretty for these portfolios when the inevitable happens.
To be clear it us only LBO backed cos that are 6 to 1 leverage. The latest number I saw was around less than 5 to 1 in fact.

The average US private co is probably less than 2 times. Without ready access to public equity, and with concentrated family ownership, they tend to be debt averse.

Where there are substantial property assets I can imagine there is much higher leverage.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by Valuethinker » Sun Jun 23, 2019 10:26 am

nedsaid wrote:
Sun Jun 23, 2019 10:18 am
stan1 wrote:
Sun Jun 23, 2019 9:02 am
nedsaid wrote:
Sun Jun 23, 2019 8:28 am
I can't access the article.
Google "vanguard private equity"
Okay, found the article and was able to read it. Thanks.

Sounds like Vanguard is considering offering private equity through its Personal Advisory Service.

Let's see, maybe Vanguard will offer Alternative Lending, Reinsurance, and Variance Risk Premium through advisors as well. Just kidding there, but I am sure Mr. Bogle wouldn't be happy with this. The nightmare would be if they hired Larry as their director of research. :wink:

It sounds like this is in response to a shrinking public stock market.
More an asset gathering strategy.

Given liquidity issues I am guessing the structure would be a "Fund of Funds" w gated redemptions.

You would have 2 levels of fees then.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by JoMoney » Sun Jun 23, 2019 10:27 am

nedsaid wrote:
Sun Jun 23, 2019 10:18 am
...
It sounds like this is in response to a shrinking public stock market.
What I read, seemed to imply they might just be looking to fill a gap in illiquid alts for institutional/HNW clients
... These clients pay an additional fee for the firm to assemble portfolios for them with Vanguard products, which include some liquid alternatives. Vanguard has no illiquid alternatives products to offer these clients now...
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Re: Vanguard to offer private equity investments? Thoughts?

Post by nisiprius » Sun Jun 23, 2019 11:00 am

My prediction is that this will be like so many other things--Vanguard's "Irish hedge fund,*" Vanguard's market neutral fund, Vanguard's commodities fund, and Vanguard's factor funds. They'll have $250,000 minimums, they'll be invisible or hard to find in the personal.vanguard.com website unless you know the secret checkbox to click, the Vanguard Managed Payout Fund will add a 5% allocation to it, it will garner a few hundred million-with-an-m dollars in assets, and everyone will forget all about it.

And meanwhile, Target Retirement, LifeStrategy, and PAS investors will put hundreds of billions of dollars into portfolios that are within shouting distance of Taylor Larimore's three-fund portfolio.

*The Vanguard Alternative Strategies Fund, VASFX. It was originally said in the financial press that it was going to be domiciled in Ireland and be pretty much almost sorta like a hedge fund. See Vanguard moves closer to offering a hedge fund. Somehow it ended up in the Cayman Islands instead of Ireland. It currently has $318 million-with-an-m AUM.
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Re: Vanguard to offer private equity investments? Thoughts?

Post by JackoC » Sun Jun 23, 2019 12:40 pm

trustquestioner wrote:
Sun Jun 23, 2019 7:52 am
Private companies are currently very highly levered, with leveraged loans (definition is something like >6x EBITDA) dominating the worry list of regulators. Obviously every fund is different but I question how much of an edge these “we target middle market firms with $10-$100 million of EBITDA and a strong competitive advantage” guys could possibly have. It sure seems like the only viable exit story is flipping to another PE firm. And we haven’t had a recession in a long time, won’t be pretty for these portfolios when the inevitable happens.
Public companies in the US have levered up considerably during the low interest rate period following the 'Great Recession'. But I'm guessing it would be viewed as heretical here generally to question buying public stocks on that basis. And with some reason. Pointing out what everyone already knows is one thing. Determining that markets aren't already correctly valuing what everyone knows is another. Similar to the common theme here that junk bonds are somehow mispriced in a way public stocks are not. Why would that be? (people here seem to sometimes think they have a good answer to that...but they don't :happy ).

The problem with Private Equity from small investor POV is simple: fees. To what degree can Vanguard solve that with its 'low cost approach'? That's a critical piece of information missing right now that's required to have any sensible opinion about Vanguard offering PE as a product, IMO.

Otherwise, if capital markets are shifting so more return is captured by private owners, and especially cutting across the timeline of firm development (more of a given % of GDP that's profit is made by eg. tech start ups before they go public, though maybe that's more 'Venture Capital' than 'Private Equity' in the jargon), then that's bad for investors limited to the public market. There's no law saying a given % of value has to be captured by public stock owners. It's worse news if there's no way to access where the value *is* being added without paying high fees. That doesn't mean you should pay those fees, but it doesn't mean everything is OK just because you don't, if that's where more of the value is shifting.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by TropikThunder » Sun Jun 23, 2019 12:59 pm

hdas wrote:
Sun Jun 23, 2019 8:16 am
It’s about time. This is a win for the little guy :greedy
It’s not for the little guy.
JoMoney wrote:
Sun Jun 23, 2019 9:59 am
From the article:
... Vanguard has told private-equity executives it is considering offering private-markets strategies to clients of its advisory services, two people said. Its focus would likely be institutions and high-net-worth clients it advises, one person said.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by drk » Sun Jun 23, 2019 12:59 pm

Private equity is a great business for those running the funds.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by Broken Man 1999 » Sun Jun 23, 2019 1:08 pm

Might be a hit for Vanguard.

I certainly won't be a candidate for their offering. But, I hope they do well with their efforts. We might get some benefits out of the venture, indirectly.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by JoMoney » Sun Jun 23, 2019 1:40 pm

I'm baffled by the interest some have in "Private Equity". If it was available for you to buy, it would no longer be "Private Equity", it would just be publicly owned equity with poor liquidity, poor disclosures, and un-audited balance sheets.
It's almost like the SEC regulations that restrict how/who this stuff can be sold to make it "cool", like cigarettes and alcohol for minors.
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Privae equity Products

Post by yousha » Sun Jun 23, 2019 2:35 pm

[Topic merged to here — moderator oldcomputerguy]

Vanguard is considering private equity products. Any thoughts.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by Sage16 » Sun Jun 23, 2019 2:38 pm

As long as Vanguard continues to stay true and offer low cost stock and bond index funds, I welcome their investigation and potentially expanding into additional offerings for investors. You can pick and choose if something makes sense for you or not. Odds are the private equity, if they go forward with it, will only be available to investor that qualify under the SEC rule for accredited investors, Rule 501 of Regulation D. If true it won't be a general offering available to all. If Vanguard can come in and drive down the cost of some alternative investments, what is the harm. I go to home depot for a new rake, I may be tempted but I don't buy a riding lawn mower because they offer one, I buy what I need from them today.
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Re: Vanguard to offer private equity investments? Thoughts?

Post by HEDGEFUNDIE » Sun Jun 23, 2019 3:02 pm

JoMoney wrote:
Sun Jun 23, 2019 1:40 pm
I'm baffled by the interest some have in "Private Equity". If it was available for you to buy, it would no longer be "Private Equity", it would just be publicly owned equity with poor liquidity, poor disclosures, and un-audited balance sheets.
It's almost like the SEC regulations that restrict how/who this stuff can be sold to make it "cool", like cigarettes and alcohol for minors.

PE’s appeal should be based in what it can do for your broader portfolio. It’s an asset class that is relatively uncorrelated with the public markets:

Image

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Re: Vanguard to offer private equity investments? Thoughts?

Post by livesoft » Sun Jun 23, 2019 3:11 pm

I suspect this is Vanguard's way to get more wealthy clients. Those clients have businesses that want to grow them and sell them. If Vanguard provides this "boutique service" to them, then their money stays at Vanguard.

Another thing is that Vanguard is a behemoth. It should be constantly looking for ways to use the money it gathers without overwhelming the companies that it purchases the public stock of. It can do that by getting in on the action before the companies issue publicly traded stock.

Just imagine you are wealthy enough to be an Angel Investor, but like the way Vanguard runs things with the rest of your portfolio. It would seem natural to ask them about private equity deals.
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Re: Vanguard to offer private equity investments? Thoughts?

Post by whodidntante » Sun Jun 23, 2019 3:16 pm

My thoughts are that it doesn't help me and doesn't hurt me, since I do not expect to invest. When they have investable funds up and running I will take another look.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by whodidntante » Sun Jun 23, 2019 3:27 pm

Tycoon wrote:
Sun Jun 23, 2019 7:25 am
I'm am starting to question Vanguard's business plan.
I learned on this forum that the ownership structure of Vanguard is better and the Johnson family et al might trick us out of our money. Try calling in like you own the place. :happy

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Re: Vanguard to offer private equity investments? Thoughts?

Post by nisiprius » Sun Jun 23, 2019 3:33 pm

livesoft wrote:
Sun Jun 23, 2019 3:11 pm
...Another thing is that Vanguard is a behemoth. It should be constantly looking for ways to use the money it gathers without overwhelming the companies that it purchases the public stock of. It can do that by getting in on the action before the companies issue publicly traded stock...
This. Vanguard now has $5 trillion in assets under management. The total US stock market is $34 trillion, total for the whole world $78 trillion. Even if you figure half of Vanguard's assets are bonds, the amount of stock they need to buy is starting to be a noticeable percentage of the US, or even the world's total supply of stocks. They probably are starting to feel (very slightly) cramped.
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Re: Vanguard to offer private equity investments? Thoughts?

Post by TheDDC » Sun Jun 23, 2019 3:52 pm

I have a friend who is a successful Wells Fargo advisor and loves to talk about his HNW clients and how he's always able to offer them "attractive PE deals". Yeah right. Most of these clients sound like fools who would flock to this service for the ego trip alone. I guess that's the only type of customer Vanguard is missing.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by samstar » Sun Jun 23, 2019 3:57 pm

......
Last edited by samstar on Thu Jul 11, 2019 2:17 am, edited 1 time in total.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by oldzey » Sun Jun 23, 2019 3:59 pm

I look forward to "VREA" (to give TREA some competition). 8-)
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Re: Vanguard to offer private equity investments? Thoughts?

Post by aristotelian » Sun Jun 23, 2019 4:09 pm

JoMoney wrote:
Sun Jun 23, 2019 1:40 pm
I'm baffled by the interest some have in "Private Equity". If it was available for you to buy, it would no longer be "Private Equity", it would just be publicly owned equity with poor liquidity, poor disclosures, and un-audited balance sheets.
It's almost like the SEC regulations that restrict how/who this stuff can be sold to make it "cool", like cigarettes and alcohol for minors.
People want what they can't have.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by Blue » Sun Jun 23, 2019 4:14 pm

I’ve been intrigued with PE since reading Swensen’s original book. With an at cost fund from a firm aligned with investors interests, I’ll give it a serious look.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by Trader Joe » Sun Jun 23, 2019 4:17 pm

Bitzer wrote:
Sun Jun 23, 2019 7:01 am
This news item is reported in the online edition of today's Wall Street Journal
My thoughts are as follows:

1. I have zero interest in private equity investments.
2. I am not their target audience.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by am » Sun Jun 23, 2019 6:13 pm

oldzey wrote:
Sun Jun 23, 2019 3:59 pm
I look forward to "VREA" (to give TREA some competition). 8-)
Is there any way to get exposure for a retail investor in properties directly? What is recommended?

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Re: Vanguard to offer private equity investments? Thoughts?

Post by asset_chaos » Sun Jun 23, 2019 7:19 pm

Vanguard may be client owned, but some of those clients are big institutions. If enough dollars from those big institutions insist that they want to go into private equity, Vanguard is likely to respond. I don't think this will effect a typical investor in any way. And it's hardly the first endeavor started in response to institutional demand. The extended duration treasury fund exists to help pension funds liability hedge, not for you or me to save a home deposit or generate retirement income.

I don't mind at all that Vanguard creates investment products in response to needs or demands of clients that are essentially different from me.
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Re: Vanguard to offer private equity investments? Thoughts?

Post by usagi » Sun Jun 23, 2019 9:56 pm

If it were any other company I would be interested in it, but I have zero respect for Vanguard outside of its few core competencies. Easier access to P.E. could be a blessing. And yes, the growth in P.E. should be a concern. There has been a growing stratification with accredited investors and P.E. just adds to the divide. As an example, lot of good ventures have been taken private in the franchise arena shutting out investors; due to the FAs, many of these are money prinitng machines from the zor perspective.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by fennewaldaj » Sun Jun 23, 2019 10:17 pm

HEDGEFUNDIE wrote:
Sun Jun 23, 2019 3:02 pm
JoMoney wrote:
Sun Jun 23, 2019 1:40 pm
I'm baffled by the interest some have in "Private Equity". If it was available for you to buy, it would no longer be "Private Equity", it would just be publicly owned equity with poor liquidity, poor disclosures, and un-audited balance sheets.
It's almost like the SEC regulations that restrict how/who this stuff can be sold to make it "cool", like cigarettes and alcohol for minors.

PE’s appeal should be based in what it can do for your broader portfolio. It’s an asset class that is relatively uncorrelated with the public markets:

Image
Is it a real low correlation though or does it just reflect infrequent price measurement? In any case there is a lot less benefit in low correlation if you can't sell the asset when you want to.

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Re: Vanguard to offer private equity investments? Thoughts?

Post by siriusblack » Sun Jun 23, 2019 10:44 pm

Why not just buy stocks like Blackstone or MAIN etc.?

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Re: Vanguard to offer private equity investments? Thoughts?

Post by oldzey » Sun Jun 23, 2019 11:43 pm

am wrote:
Sun Jun 23, 2019 6:13 pm
oldzey wrote:
Sun Jun 23, 2019 3:59 pm
I look forward to "VREA" (to give TREA some competition). 8-)
Is there any way to get exposure for a retail investor in properties directly? What is recommended?
You can open an IRA with TIAA and add QREARX (TIAA Real Estate Account [TREA]) to it.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

am
Posts: 2972
Joined: Sun Sep 30, 2007 9:55 am

Re: Vanguard to offer private equity investments? Thoughts?

Post by am » Mon Jun 24, 2019 7:48 am

oldzey wrote:
Sun Jun 23, 2019 11:43 pm
am wrote:
Sun Jun 23, 2019 6:13 pm
oldzey wrote:
Sun Jun 23, 2019 3:59 pm
I look forward to "VREA" (to give TREA some competition). 8-)
Is there any way to get exposure for a retail investor in properties directly? What is recommended?
You can open an IRA with TIAA and add QREARX (TIAA Real Estate Account [TREA]) to it.
That’s a lot of hassle to obtain access to this fund. Is this fund generally recommended on this site? Any other recommended ways to gain access?

MichCPA
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Re: Vanguard to offer private equity investments? Thoughts?

Post by MichCPA » Mon Jun 24, 2019 8:05 am

JoMoney wrote:
Sun Jun 23, 2019 1:40 pm
I'm baffled by the interest some have in "Private Equity". If it was available for you to buy, it would no longer be "Private Equity", it would just be publicly owned equity with poor liquidity, poor disclosures, and un-audited balance sheets.
It's almost like the SEC regulations that restrict how/who this stuff can be sold to make it "cool", like cigarettes and alcohol for minors.
Just because these firms aren't public doesn't mean they aren't audited. I work in finance for a private equity co that is audited by EY (big 4 who audits tons of large public Cos). Disclosures are abbreviated (mostly segment reporting gets cut) and rule updates are often a year behind, but this wild west characterization is off base. No bank is going to allow a company to have a loan of any significance without audited statements and most PE owners/banks would insist on an audit firm with a solid reputation.

MichCPA
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Re: Vanguard to offer private equity investments? Thoughts?

Post by MichCPA » Mon Jun 24, 2019 8:07 am

fennewaldaj wrote:
Sun Jun 23, 2019 10:17 pm
HEDGEFUNDIE wrote:
Sun Jun 23, 2019 3:02 pm
JoMoney wrote:
Sun Jun 23, 2019 1:40 pm
I'm baffled by the interest some have in "Private Equity". If it was available for you to buy, it would no longer be "Private Equity", it would just be publicly owned equity with poor liquidity, poor disclosures, and un-audited balance sheets.
It's almost like the SEC regulations that restrict how/who this stuff can be sold to make it "cool", like cigarettes and alcohol for minors.

PE’s appeal should be based in what it can do for your broader portfolio. It’s an asset class that is relatively uncorrelated with the public markets:

Image
Is it a real low correlation though or does it just reflect infrequent price measurement? In any case there is a lot less benefit in low correlation if you can't sell the asset when you want to.
If you have an issue with the liquidity of PE then a mutual fund or ETF would actually improve that issue.

cheezit
Posts: 215
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Re: Vanguard to offer private equity investments? Thoughts?

Post by cheezit » Mon Jun 24, 2019 8:12 am

samstar wrote:
Sun Jun 23, 2019 3:57 pm
PE ownership in a lot of ways is a superior way for companies to build value.
What experience do you have working for firms owned by private equity companies? IME a PE firm is the worst possible owner. I am extremely lucky that my current employer had a brief tenure being owned by a PE firm, and that the PE firm found it more profitable to flip us quickly than to strip us. The foreign conglomerate they sold us to has been angelic by comparison.

Valuethinker
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Re: Vanguard to offer private equity investments? Thoughts?

Post by Valuethinker » Mon Jun 24, 2019 8:18 am

MichCPA wrote:
Mon Jun 24, 2019 8:07 am
fennewaldaj wrote:
Sun Jun 23, 2019 10:17 pm
HEDGEFUNDIE wrote:
Sun Jun 23, 2019 3:02 pm
JoMoney wrote:
Sun Jun 23, 2019 1:40 pm
I'm baffled by the interest some have in "Private Equity". If it was available for you to buy, it would no longer be "Private Equity", it would just be publicly owned equity with poor liquidity, poor disclosures, and un-audited balance sheets.
It's almost like the SEC regulations that restrict how/who this stuff can be sold to make it "cool", like cigarettes and alcohol for minors.

PE’s appeal should be based in what it can do for your broader portfolio. It’s an asset class that is relatively uncorrelated with the public markets:

Image
Is it a real low correlation though or does it just reflect infrequent price measurement? In any case there is a lot less benefit in low correlation if you can't sell the asset when you want to.
If you have an issue with the liquidity of PE then a mutual fund or ETF would actually improve that issue.
1. a mutual fund or ETF does not solve the problem of PE fund illiquidity for investors

To provide liquidity that fund has to hold a percentage in liquid assets. For example in Europe, property funds (typically run by insurance companies, directly own buildings) tend to hold 20% in listed real estate securities to provide liquidity. But when there is a general downturn (as in 2009) those funds "gate" themselves (halt liquidity for unit holders) and/ or apply a MVA (Market Value Adjustment) to any redemptions - it can be severe.

Also if a fund has meaningfully overestimated its NAV by overvaluing its assets (or there has been a sharp downturn in valuations since the last valuation).

2. I don't know what the taxes would look like for an individual tax payer but I imagine they would be grievous. PE funds use a mixture of equity, Loan Stock and other instruments to achieve returns, sometimes they control a company sometimes they do not. So would the private investor not be faced with a complex calculation each year re the split between dividends interest & capital gains?

3. if you meant that using an open ended fund structure would solve the problem of stale valuations, I don't think it would.

A Closed End Fund might - the market would price in a discount to the NAV (or premium) in the share price of the CEF. In an analogous manner to how it values REITs - NAVs on REITs are trailing, but share prices are forward looking.

This is to an extent what the UK listed PE funds do (all CEFs) - unfortunately I think for an American the PFIC would kill you.

Grt2bOutdoors
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Location: New York

Re: Vanguard to offer private equity investments? Thoughts?

Post by Grt2bOutdoors » Mon Jun 24, 2019 8:22 am

hdas wrote:
Sun Jun 23, 2019 8:16 am
Bitzer wrote:
Sun Jun 23, 2019 7:01 am
This news item is reported in the online edition of today's Wall Street Journal
It’s about time. This is a win for the little guy :greedy
When the little guy gets in, the smart money gets out. Guess who’s going to be left holding the bag?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

JackoC
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Joined: Sun Aug 12, 2018 11:14 am

Re: Vanguard to offer private equity investments? Thoughts?

Post by JackoC » Mon Jun 24, 2019 8:30 am

cheezit wrote:
Mon Jun 24, 2019 8:12 am
samstar wrote:
Sun Jun 23, 2019 3:57 pm
PE ownership in a lot of ways is a superior way for companies to build value.
What experience do you have working for firms owned by private equity companies? IME a PE firm is the worst possible owner. I am extremely lucky that my current employer had a brief tenure being owned by a PE firm, and that the PE firm found it more profitable to flip us quickly than to strip us. The foreign conglomerate they sold us to has been angelic by comparison.
In the long term in theory there should be a basic alignment of worker and investor interests: if one is broadly and consistently unhappy the other will also probably be unhappy eventually. But it's still not complete alignment and in the real world over a shorter time frame, and with respect to just particular workers, companies or investors, it's a much weaker relationship. That a given worker at a particular company at a particular time is happy or unhappy with the management tells me little about whether it's a good investment for me.

Again on the actual question, the problem with PE from outside investor (as opposed to PE firm principal) POV is fees. It's not that all other investments are somehow inherently inferior to the 'Superior Asset', public stock indexes. Can Vanguard's 'low cost approach' change that? Although, that would perhaps still only be for a limited slice of Vanguard investors who meet high minimums, etc. I don't see any information on that so far.

afan
Posts: 4220
Joined: Sun Jul 25, 2010 4:01 pm

Re: Vanguard to offer private equity investments? Thoughts?

Post by afan » Mon Jun 24, 2019 8:36 am

TropikThunder wrote:
Sun Jun 23, 2019 12:59 pm
hdas wrote:
Sun Jun 23, 2019 8:16 am
It’s about time. This is a win for the little guy :greedy
It’s not for the little guy.
JoMoney wrote:
Sun Jun 23, 2019 9:59 am
From the article:
... Vanguard has told private-equity executives it is considering offering private-markets strategies to clients of its advisory services, two people said. Its focus would likely be institutions and high-net-worth clients it advises, one person said.
Even if Vanguard limits it to "high networth" clients, there is a big gap between the threshold to being an accredited investor and having enough money to get into the good PE funds. They usually want a commitment that is an order of magnitude, at least, beyond the total networth one needs to be accredited. The most successful funds may well require two orders of magnitude more. Compared to going it alone, this would permit the mass affluent to participate.

It may be a way for Vanguard to compete with smaller RIAs that serve wealthy clients. They no longer have to tell such families that all they have to offer are plain old index funds. They now have market neutral, quant factor and other such "sophisticated" investments.

The problem: If you believe in PE as an investment strategy, the evidence in favor suggests persistence of performance among managers and that one only wants to invest with those with good records. Those with good records are able to attract lots of money. So they would need a reason to want to do business with Vanguard. Maybe a much bigger pool of money if there are enough HNW Vanguard PAS clients who want it. But maybe more regulatory hassles and nervous investors when you start dealing with small fry with single digit millions to commit.

From the reports that Vanguard simply tells PAS clients to take it or leave it with their choices of funds and asset allocations, I wonder whether PE would be presented as an option to those eligible clients? Or would it simply be part of the deal is you want Vanguard to manage your assets?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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