Harbourvest thru Vanguard?

[smooth_rough]

For Bogelheads investing with Harbourvest thru Vanguard, what is percent of your AA? What kind of metric do you use to benchmark performance? How long do you expect to hold? Do you consider it tax efficient? Since it must be actively managed, has it been worth extra expense?

Other considerations?

[arcticpineapplecorp.]

this post regarding the interview with Vanguard's Fran Kinniry said as much as 30% of the equity portion in private equity could be feasible

[AlwaysLearningMore]

this post regarding the interview with Vanguard's Fran Kinniry said as much as 30% of the equity portion in private equity could be feasible

* let's see if PE makes it into any balanced funds for "qualified" investors

[smooth_rough]

this post regarding the interview with Vanguard's Fran Kinniry said as much as 30% of the equity portion in private equity could be feasible

I'm not comfortable with the lack of transparency in general.

How do firms like Harbouvest evaluate deals? Do they just convoy behind VCs in silicon valley, and take substantial fees for bundling smaller investors capital?

[Nathan Drake]

Not sure it’s worth the effort

PE right now looks overvalued and firms are trying to find retail interest to prop it up

If you want PE like historical returns, invest in SCV where you don’t have the issues with PE presently

[arcticpineapplecorp.]

this post regarding the interview with Vanguard's Fran Kinniry said as much as 30% of the equity portion in private equity could be feasible

I'm not comfortable with the lack of transparency in general.

How do firms like Harbouvest evaluate deals? Do they just convoy behind VCs in silicon valley, and take substantial fees for bundling smaller investors capital?

i agree and i'm not sure how they do it but you might be right about convoying behind VCs though I'm not sure if that's entirely it. i guess because they've been vetted by Vanguard they must come with their seal of approval.

[nyclon]

For Bogelheads investing with Harbourvest thru Vanguard, what is percent of your AA? What kind of metric do you use to benchmark performance? How long do you expect to hold? Do you consider it tax efficient? Since it must be actively managed, has it been worth extra expense?

Other considerations?

My observation, after speaking with several folks at vanguard in the PE group, is that it is a well run program that is structured similarly to the offerings that ultra high net worth advisors offer - but at a much lower cost. This is vanguard’s way of offering a comparable service to those firms and competing for their clients. I can see this working for families that have well north of $100mm.

The biggest difference in my opinion is that some of those advisors may have access to investments that Harbourvest doesn’t. However I don’t know that for sure - Harbourvest is a well respected firm with great access - and those extra offerings may not make a difference overall. Also, other firms’ PE offerings may include private credit and real estate whereas Vanguard’s is private equity only.

So the benchmark I’d use, which they also use, is the MSCI all world index. They target about 70% US / 30% non us. You should be getting at least a few hundred basis points over that index.

You do need to consider after tax returns however. And, after-CPA fee returns - the reporting might be cumbersome.

The initial distributions I believe are return of capital so that helps on the tax side of things. As you point out, you have to manage the capital calls; it’s pretty capital efficient because vanguard uses a line of credit to borrow for capital calls before calling you, which means they can massage the IRR. Everyone with a well run fund does this.

About 20-40% of equity allocation is what they have suggested and I think it really depends on how liquid you want to be; and depends on your withdrawal rate.

Assume a 15 to 17 year total hold period before the last dollar comes back in. You may get all of your principal back well before then, but you’d want to redeploy it into new vintages of PE for diversification.

This is where I’m not sure about the tax efficiencies over the decades - with ETFs/mutual funds you can compound forever. With PE you have to take distributions, pay tax, and redeploy.

Ultimately I opted out knowing that I *may* be giving up returns in exchange for expenses (CPA work on the reporting), liquidity and simplicity (no managing capital calls). I also like the fact that publicly traded companies have more regulatory oversight, investor eyes, and quarterly reporting. We all take the haircut on returns in public equity in exchange for these risk reductions.

It’s a tough decision because more companies these days are staying private and I’d like exposure to them. After all, every public company that we are all invested in was private at some point…

[smooth_rough]

this post regarding the interview with Vanguard's Fran Kinniry said as much as 30% of the equity portion in private equity could be feasible

I'm not comfortable with the lack of transparency in general.

How do firms like Harbouvest evaluate deals? Do they just convoy behind VCs in silicon valley, and take substantial fees for bundling smaller investors capital?

i agree and i'm not sure how they do it but you might be right about convoying behind VCs though I'm not sure if that's entirely it. i guess because they've been vetted by Vanguard they must come with their seal of approval.

This would appear to be in the category with hedge funds and SPACs. It doesn't feel like vanguard product. It is almost as if vanguard is trying to maintain an arms length distance, so that if or when there might ever be melt down, vanguard could disassociate itself from Harbourview.

[arcticpineapplecorp.]

this post regarding the interview with Vanguard's Fran Kinniry said as much as 30% of the equity portion in private equity could be feasible

I'm not comfortable with the lack of transparency in general.

How do firms like Harbouvest evaluate deals? Do they just convoy behind VCs in silicon valley, and take substantial fees for bundling smaller investors capital?

i agree and i'm not sure how they do it but you might be right about convoying behind VCs though I'm not sure if that's entirely it. i guess because they've been vetted by Vanguard they must come with their seal of approval.

This would appear to be in the category with hedge funds and SPACs. It doesn't feel like vanguard product. It is almost as if vanguard is trying to maintain an arms length distance, so that if or when there might ever be melt down, vanguard could disassociate itself from Harbourview.

could be. especially considering it can be said if you want private equity, just own small cap value. According to Rick Ferri:

Privately held companies tend to be much smaller than publicly traded ones, and they are bought and sold at lower multiples based on known private equity transactions. Over time, the returns of private equity funds are comparable to small-cap value indices. There is a growing body of academic research supporting this view.

source: https://core-4.com/total-economy-core-4-portfolio/

[nisiprius]

This is the podcast I was trying to remember.

A Candid Discussion with Ted Aronson about Vanguard's Push into Private Equity...

Transcript

Snippets. Tiny snippets.

Rick Ferri: They’ve gone out and picked a company called Harbourvest....

Ted Aronson: First and foremost, I think Jack is spinning in his grave.... I think they will do a good job of providing private equity, however when their fees they’ll have to add on top of the costs of Harbourvest and all the other related charges, I don’t think they’ll have anything that’s particularly competitive...

Ferri: .... Number one the firm that they chose, Harbourvest has 75 billion or so under management.... Vanguard is roughly an 8 trillion dollar company and Vanguard is managing maybe 4.5 trillion of equity in total and they were talking about taking– the numbers don’t make sense–but you know up to some percentage of that moving it over slowly to private equity. And the reason I say it doesn’t make sense is because Harbourvest is only managing, like I said, 75 billion and I mean just a little bit of movement by Vanguard and shareholders over to this fund is going to flood Harbourvest.
And I don’t think it will happen because I don’t think that Vanguard and Harbourvest will allow this flood to occur. So we’re really talking about a small amount of money from Vanguard investors actually going into this product.

[Maybe Vanguard's idea is] maybe 20 years from now private equity and exact access to world-class managers for the average investor will look very much like indexing did over the course of 1975 to 1995. But how can you do that? I mean how can you pour so much money into private equity and make it kind of index-like and expect to get the same return?

Aaronson: Rick, you really can’t.... It’s an impossibility; it just can’t be done. I think in all the private equity they found something like a trillion dollars of dry powder of committed capital, something like that. So, and those are the biggest numbers that have ever been seen. So can you imagine throwing a couple other trillion on top of that chasing the same deals? I don’t think so.

Ferri: ...Okay, so first Fran was talking about Harbourvest has been getting 700 to 800 basis points over the public markets. That’s what they’ve been saying, but you know what Vanguard’s forward-looking estimates to our investors– and this is just quoting him– get between 300 to 400 basis points or three to four percent more than public equity. Wow, really? I mean everybody’s going to get that?

Aronson: Well my first reaction to what you said Rick is bingo, because of course no one’s going to get it. It’s silly. Could they do 300 or 400 over the next couple of years before fees? Maybe. Fees will reduce it to maybe 100 basis points. So now we’re talking about public markets plus a little alpha, if you will, thrown in. Let’s call it alpha because that’s what active managers are all about. 300 or 400 is silly; 700 or 800 may be true but that was when Harbourvest was small and that’s when there were a limited number of deals. I’m not saying there aren’t smart enough people to get returns like that. I would love to run out and hire them when they’re young and they’re new. But because they’re young and they’re new, nobody knows about it or very few people do, so the return expectations are in my opinion scary and silly as you note.

Private equity returns are very close to lower cap value returns, at least historically and that’s absolutely true with one addition — and that’s leverage. Private equity deals usually entail leverage, not always wild amounts of leverage, but some leverage. And if you do that to things like mid cap value returns you get private equity returns.

[nedsaid]

Larry Swedroe said that Private Equity historically has returns very similar to Small Cap Value, which echoes Nisiprius' post above. These can be good investments but they are illiquid and most investors would find they aren't worth the trouble.

[nisiprius]

If I understand Ted Aronson's comments... it's not merely like small-cap value. It's like
a) leveraged,
b) illiquid,
c) opaque,
d) actively managed
small-cap value.

[LondonYank]

Folks may be interested in taking a look at HVPE, which is the Harbourvest vehicle listed in London. It’s been around for over 15 years now and offers access to Harbourvest funds through a liquid vehicle. It’s share price has derated (along with the whole listed PE sector) and trades at a 40% discount below its NAV.

Link to investor deck: https://www.hvpe.com/media/lo0igmbb/cap ... update.pdf

[hlfo718]

HVPE will trigger PFIC so that could be really painful. Better off investing in the firms like BX, KKR, and others.