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The People’s Mutual Fund Manager Dips a Toe Into Private Equity

Low-cost index fund specialist Vanguard turns to the world of complex, expensive investments.

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Illustration: Ram Han for Bloomberg Businessweek

Vanguard Group, which manages $6.2 trillion in assets, unveiled plans on Feb. 5 to offer a private equity fund. The move represents a surprising convergence of two very different investing worlds. The Malvern, Pa., company showed millions of investors that they could beat many Wall Street pros by keeping things simple using low-cost index funds and exchange-traded funds. PE funds are the opposite of simple: They charge high fees for opaque portfolios and can lock up cash for years—which is why the U.S. Securities and Exchange Commission has long kept smaller investors out of them.

Vanguard is just dipping a toe in for now. Its offering, which will be managed by an outside firm called HarbourVest Partners, will be available only to institutions such as endowments and nonprofit foundations. But Vanguard intends to move beyond that. Chief Executive Officer Tim Buckley said in a release that for individual investors, the company’s move into private equity will eventually “present an incredible opportunity—access and terms they could not get on their own.”