Vanguard weighs its edge in private equity

Vanguard Group CEO Mortimer J. “Tim” Buckley told investor clients that any expansion within alternatives for the firm, including in private equity, will depend on whether new products can pass a number of “basic tests,” before coming to market.

During a Jan. 9 Facebook webcast, Mr. Buckley and Chief Investment Officer Gregory Davis answered client questions and offered insights for 2020.

One client asked the executives whether Vanguard had plans to offer new alternative investment products.

“Whoever is asking that question has probably read that we have looked at private equity,” Mr. Buckley said.

In June, a published report said Vanguard Group had held exploratory talks with prospective partners and was in the early stages of considering making private equity funds available to its clients.

Vanguard currently offers some alternative strategies to clients, such as its Vanguard Alternative Strategies Fund and Vanguard Market Neutral Fund, Mr. Buckley said in the video.

Mr. Buckley told clients on Jan. 9 that new products must meet certain criteria, such as having a good and enduring investment thesis. “It can’t be some fad way of investing,” he noted.

There must also be a client need for new offerings, he said.

While private equity has usually served as a “great diversifier” in the investment portfolios of endowments and foundations, there are “tougher” challenges the firm would also have to consider.

“It’s really tough to offer some of these alternatives (strategies) in a traditional fund, what we call a 40 Act fund,” he said. Additionally, the $6 trillion money manager would “have to be able to add some value from a Vanguard perspective.”

“We’d like to be the best in the world at it. We don’t want to offer ‘me too’ products. So, if we’re going to offer you access to, whether its private equity or another alternative (product), we’ve got to make sure that we can give you better pricing than you would get otherwise,” Mr. Buckley said.

The firm would also have to ensure that it could give clients access to alternative managers that would have “the better chance of outperforming over time,” he added.

“It’s not until we can pass all of those tests that we actually will offer something in the marketplace,” Mr. Buckley said.

Source: Pensions&Investments

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