Vanguard's Private Asset Pivot: A New Era or a Risky Bet?

In the ever-evolving landscape of finance, vanguard, the titan of low-cost, passive investments, is reportedly eyeing a partnership with blackstone and carlyle to offer private assets to individual investors. This move, if realized, could reshape the investment landscape and challenge Vanguard's long-standing reputation as the everyman’s investing partner. But is this a strategic pivot or a risky bet that could undermine the trust of its loyal "Bogleheads"?

Vanguard, with its $10.4 trillion in assets, has long been synonymous with accessibility and affordability. Its founder, Jack Bogle, revolutionized the industry by making investing accessible to the masses. However, the potential partnership with Blackstone and Carlyle, two of the world’s biggest private equity companies, raises questions about whether Vanguard is straying from its core values.



The move comes at a time when there is a growing demand for alternative investments among retail investors. The launch of the SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV) by State Street and Global Management earlier this year highlighted the increasing interest in private assets. However, it also raised concerns over liquidity risk management and the suitability of private assets for individual investors. The Securities and Exchange Commission (SEC) raised questions about the fund’s liquidity risk management program and the use of Apollo in its name, suggesting that Vanguard will need to address similar concerns if it proceeds with offering private assets.

The potential partnership with Blackstone and Carlyle could provide Vanguard's investors with access to new and potentially lucrative investment opportunities. However, it also poses significant risks. Private assets are typically higher-cost and less liquid, which could challenge Vanguard's image as a low-cost, passive investment provider. As noted by etf.com Senior ETF Analyst Sumit Roy, "It seems out of left field," suggesting that such a move could be surprising and potentially confusing for long-time Vanguard watchers.

Moreover, there are questions about whether private assets are appropriate for individual investors and, if they are, how these assets should be offered. Vanguard will need to ensure that any private asset offerings are suitable for its broad investor base, which could involve additional regulatory scrutiny and compliance measures. The firm will also need to invest in investor education to ensure that individual investors understand the risks and benefits of these investments.

The potential partnership with Blackstone and Carlyle could also help Vanguard stay competitive in a market where there is a growing demand for alternative investments. As noted by Zane Carmean, director of PitchBook’s quantitative research team, "This is a seismic structural shift for financial markets, where more and more we see a blurring of lines between public and private investments." By offering private assets, Vanguard could attract new investors who are looking for these types of investments.

However, the move also raises ethical questions about whether Vanguard is prioritizing growth over its core values. The firm has long been known for its commitment to low-cost, passive investments, and a tie-up with elite, white-shoe financial firms like Blackstone and Carlyle could challenge that reputation. As noted by Bloomberg ETF analyst Eric Balchunas, "It's like letting the low cost fox inside the high cost hen house," adding that "ETFs could threaten revenue while exposing the mark to magic system."

In conclusion, Vanguard's potential partnership with Blackstone and Carlyle to offer private assets to investors presents both opportunities and risks. The firm will need to navigate regulatory challenges, ensure the suitability of private assets for individual investors, and leverage regulatory changes to expand access through 401(k) plans and evergreen funds. Strategic decisions around product design, partnerships, and investor education will be crucial in determining the success of this initiative. The key will be for Vanguard to manage these risks carefully and ensure that any new products are suitable for its existing investor base. Only time will tell whether this move is a strategic pivot or a risky bet that could undermine the trust of its loyal "Bogleheads."