Vanguard to Enter Private Equity Space

Vanguard says it is moving into private equity with HarbourVest.

The fund giant's Institutional Advisory Services unit — an outsourced chief investment officer for some $50 billion — first will provide the private equity strategy to pensions, endowments and foundations, but the offering could be shared with more investors in the future.

"While this strategy will be initially available to institutional advised clients, we aim to expand access to investors in additional channels over time," according to Vanguard CEO Tim Buckley. "For individual investors in particular, this partnership will present an incredible opportunity — access and terms they could not get on their own."

While Vanguard works with some $6.2 trillion in assets, HarbourVest manages about $68 billion in assets held in primary fund investments, secondary investments and co-investments in separately managed accounts or commingled funds.

"Many institutional clients seek alpha sources not readily available in the public markets," said Chris Philips, head of Vanguard Institutional Advisory Services, in a statement.

But these organizations often find it "challenging to access leading private equity managers and invest with discipline and skill," Philips added. The tie-up combines Vanguard's capabilities and "HarbourVest's private market expertise, to the ultimate benefit of our clients."

According to the CFA Institute, the private equity industry grew more than 500% from 2000 to 2019 and is valued at over $3 trillion.

"We look forward to expanding access to private equity to help strengthen returns for qualified investors," John Toomey, managing director of HarbourVest, said in a statement.

Private equity funds are typically open only to accredited investors, which the Securities and Exchange Commission defines as those who have more than $200,000 in yearly earned income (or $300,000 together with a spouse) over the past two years and expects to have this income in the current year, or has a net worth that is over $1 million, either alone or with a spouse (excluding the value of the primary residence).

Trusts with more than $5 million in assets also are considered accredited investors.

The SEC, though, is proposing to amend this definition to add new categories of qualifying individuals and entities.

— Check out Why Vanguard's Chief Economist Is Long-Term Bullish on ThinkAdvisor.