Latest news with #passiveindexfunds
Forbes
16 hours ago
- Business
- Forbes
Private Equity Eyes $29 Trillion Of Retirement Savings With Trump's Expected Blessing
J ack Bogle became a legend by popularizing low-cost passive index funds at the Vanguard Group, which he founded in 1975 after spending the first 23 years of his career at Wellington Management. 'Don't look for the needle in the haystack. Just buy the haystack,' he famously mused. That philosophy— be the market, don't try to beat it—spawned generations of index fund-loving, buy-and-hold 'Bogleheads' who have made Vanguard into what it is today: a $10 trillion-in-assets mutual fund colossus serving more than 50 million individual customers. Over the same half-century, private equity was also growing into a more than $10 trillion-in-assets industry—in a very different way. This one was built on the promise of market-beating returns produced by managers demanding high fees: usually a percent of assets (typically 2% a year) and a hefty cut of profits (typically 20%). Plus they insisted on a long-term commitment of assets by their institutional investors, including pension funds, college endowments and foundations. Vanguard, which Bogle set up to be owned by its investors, has produced a lot of prosperous retirees but zero money-manager billionaires. Private equity, with its profit share (known as carried interest), has minted dozens of them. Stephen Schwarzman, chairman, CEO and cofounder of Blackstone, the world's largest private equity manager with more than $1 trillion in assets under management, is worth an estimated $50 billion. So it was a bit jarring, culturally and historically speaking, when Vanguard and Wellington announced in April that they had formed a 'strategic alliance' with Blackstone to offer products for individual investors blending private and public market assets. Jarring but maybe not so surprising given that the heavyweights of private equity and retail distribution are now pairing off with an urgency that suggests they're desperate to avoid missing out on the next big moneymaking opportunity: getting into Americans' 401(k)s and IRAs, which hold $29 trillion in assets. And the Trump administration aims to help them. In February, Boston's State Street Investment Management, which created the exchange-traded-fund business back in 1993, kicked off the action by offering the first ETF with a mix of public and private debt, with the latter sourced from private equity giant Apollo Global ($785 billion under management). Then, a couple months later, State Street announced the launch of an 'Index Plus' retirement target date fund series—90% index funds with a 10% kicker of Apollo private market assets. In May, Empower, a top player in the market for small-company 401(k)s, said it's working with Apollo, Franklin Templeton, Goldman Sachs and others to offer retirement savers collective investment trusts containing a mix of private equity, private credit and real estate. And in July, Voya Financial, another big 401(k) player, announced it was teaming up with private credit's Blue Owl Capital on a new series of blended products. There's no mystery why private asset managers are keen to play. After years of beating public stock markets, private equity's average annual return has lagged stocks by more than three points over the last three years (see 'Turn of Fortunes'). A slowdown of exit deals has led to a glut of aging assets in private equity funds. New funds raised by the industry have plunged 39% since 2021 as clients have fewer payouts to reinvest and some college endowments and pension funds are freezing or even reducing their private asset allocations (see 'A Slowing Spigot'). Private asset managers have been gathering money from high-net-worth individuals for more than a decade. Until now, though, they haven't cracked regular investors' $29 trillion retirement nest egg—$12 trillion in defined contribution workplace plans like 401(k)s and $17 trillion sitting in individual retirement accounts. That's now changing. Crucially, President Joe Biden's Department of Labor threw cold water on private assets in 401(k)s, but President Donald Trump is reportedly close to signing an executive order specifically encouraging alternative assets in the accounts. The mutual fund and retail distribution companies see a win here too. Their margins have shrunk as competition and the share of money in low-cost index funds have grown. A private-assets kicker is a new way to differentiate their offerings and charge higher fees. Ordinary investors? They may or may not be winners. More options are almost always a good thing, but they need to be careful of higher fees and less liquidity. Plus, assessing the performance of these new hybrid private products will be difficult. In an interview with Forbes in June 2017, a year and a half before his death at 89, Bogle wasn't giving any ground. 'The idea of making money for the funds' shareholders is counter-opposed to the idea of making money for fund managers,' he declared. W ellington Management CEO Jean Hynes, ensconced in an office on the top floor of a 31-story tower overlooking Boston Harbor, likes the long view: The 56-year-old has spent her entire career at the firm. She was raised in the Boston suburb of Milton as one of six children born to Irish immigrants—her father was a bricklayer—who believed, she says, in investing through their children; they spent their money sending them to Catholic school and college. Hynes wound up at Wellesley College, where she majored in economics and interned for a local stockbroker. After graduating in 1991, she was hired by Wellington as an administrative assistant. Her detailed notes at morning investing meetings impressed the late Ed Owens, who managed the Vanguard Health Care Fund to a 16.4% average annual return over 28 years before retiring in 2012. Hynes became his research assistant, protégé and, eventually, a fund manager herself. 'It was a match made in heaven from day one,' she says. 'He's probably one of the top 25 investors of all time, and that's who I learned from and worked with for 20 years.' After winning the CEO job in 2021, Hynes got some advice from health care chiefs she knew. Merck's Ken Frazier (now retired) told her that of all the decisions he made daily as CEO, only four really mattered. The lesson: Get the big swings right. Hynes sees the alliance with Blackstone as one of those big decisions. She ticks off the trends she has seen—actively managed equity, an explosion of fixed income, the dominance of index funds and, now, alternative investments. And she makes a credible case for why Main Street investors might want to get into private assets. 'If you look holistically at the economy, 20 years ago the average person who invested and bought mutual funds could invest in the whole economy. And that's not true today,' she says. 'You have a whole part of the economy that is only for the institutional investor, and that's all the private companies.... It's fair that more individuals have access to that.' While Wellington has always been an active manager, it is deeply intertwined with Vanguard's low-cost passive investing DNA. The relationship dates to Bogle's firing as Wellington's CEO in 1974 during a brutal bear market. A boardroom fight and peace treaty eventually left him in charge of a new company (Vanguard) that would administer funds, while Wellington controlled investment management and distribution. Bogle told Forbes in 2017 that he launched low-cost index funds and direct-to-consumer sales in part because it allowed him to do an end run around Wellington by claiming there was no money management or distribution involved. A half-century later, Wellington is still the largest external advisor for Vanguard's actively managed funds. The Vanguard Wellington Fund, the nation's oldest balanced mutual fund (two-thirds stocks, one-third bonds) has returned an average of 8.3% annually since inception in 1929. It charges a modest 0.25% of assets and has $115 billion in assets. While Wellington has dabbled in private markets for a decade, they still amount to only $9 billion of the $1.2 trillion in assets it manages, less than 0.8%. So last year, when Hynes was ready for her big swing, Wellington approached Blackstone about teaming up. 'We've never thought that we would be good at buyouts, taking a company private and managing a company and fixing it. That's not our skill set,' says Wellington managing partner Terry Burgess, who supervises the team tasked with steering the alliance's funds. Its first product, the WVB All Markets Fund, is a closed-end 'interval fund'—meaning it will offer quarterly redemptions to investors for liquidity and could be the centerpiece of a diversified portfolio. Public stocks (from Vanguard funds and direct Wellington investments) will be 40% to 60% of assets; bonds (through actively managed Vanguard funds) will be 15% to 30%; and private Blackstone funds will make up 25% to 40%. Wellington will determine exactly how assets are allocated. The preliminary prospectus leaves the door open for exposure to private equity, credit, real estate and privately owned infrastructure. It doesn't specify what the management fee will be, but it will be on top of the fees in the underlying funds. If the overall fund is down in value due to a decline in the public markets, Wellington will reimburse it for Blackstone's performance fees—that way, retail investors sitting on losses from WVB wouldn't get whacked with a stiff performance fee regardless. The WVB Fund will be marketed first to wealthy clients through financial advisors and family offices. But all eyes are on the 401(k) prize. 'Do I think over time, privates will start to serve more of a role when it comes to target date funds? I do,' says Vanguard president and chief investment officer Greg Davis, noting that the timing will depend on how comfortable plan sponsors (meaning employers) are with adding higher-cost products to their offerings. It's notable that across the industry, the new private asset–tinged investments are being sold first to accounts managed by financial advisors and to target date funds, which are managed by investment pros, with allocations based on a saver's expected (i.e., target) retirement date. 'It's a simple equation,' Vanguard founder Jack Bogle told Forbes in 2017. 'Gross return minus costs equals net return, which is a universal principle in investing that I put to work after a long struggle.' MARTIN SCHOELLER FOR FORBES Target dates are an obvious entry point for two reasons. First, they're growing like crazy. Thanks to Congress and regulators, millions of workers are being automatically enrolled in 401(k)s, with their contributions (and employer matches) funneled into target dates by default. According to Morningstar, over the last 15 years, assets in these funds have grown at an astounding 30% annual compound rate and now amount to $4 trillion. Vanguard controls 37% of the target date market, more than double the share of its nearest competitor, Fidelity Investments. The second reason is that professional management of target dates blunts the criticism that average investors won't be able to judge the performance of hard-to-value private assets. 'I think over time, just like there are Morningstar ratings of all sorts of public mutual funds, when you look out five, ten years from now, all these funds are going to be ranked based on performance,' says Jonathan Gray, Blackstone's president and chief operating officer. 'That is critically important.' P rivate equity pioneer KKR launched in 1976 with cash from an insurance company and wealthy backers. But by 1978, it had money from Oregon's public pension plans, and others soon followed. Today, public pensions allocate an average 23% of assets to alternative investments, the National Association of State Retirement Administrators reports. College endowments began piling aboard after David Swensen took over Yale's endowment in 1985 and bolstered returns by diversifying into private assets. Today, endowments allocate an average 26% of assets to private markets, according to Cambridge Associates. Harvard has 39% in private equity; Princeton has 41%. Now some of these traditional sources are pulling back. As America's richest colleges face deep federal funding cuts and a federal tax as high as 8% (up from 1.4%) on endowment income, Yale, Harvard and others are said to be selling private equity investments on the secondary market. The University of California system is cutting back on its target allocation for private investments in its endowments and pension funds, even as it is working with State Street to make private assets available in employees' retirement savings plans. Traditional pension plans, particularly private ones, are diminishing in relative importance as employers shift the retirement burden to workers. Back in 2000, traditional pensions—public and private combined—held roughly the same $5 trillion as 401(k)s and IRAs. Now it's $12 trillion and $29 trillion, respectively, according to the Investment Company Institute. Private asset managers have been wooing financial advisors and their wealthy clients with perpetual capital funds, which often allow up to 5% of investors to cash out each quarter. An early example was the Blackstone Real Estate Income Trust, launched in 2017. It now has $53 billion in net assets. Blackstone Private Credit Fund, launched in 2021, has $72 billion. All told, Blackstone manages $270 billion from individuals, and this market is growing with a boost from cloud-based platforms for investment advisors. Example: BlackRock, which manages $12.5 trillion in assets, recently teamed up with fintechs GeoWealth and iCapital to create model portfolios holding both private and public assets. Joan Solotar, Blackstone's head of global private wealth, says most individual investors in private markets have $5 million or more in investable assets, but those with at least $1 million are now being actively targeted. 'It's still quite early for investors below a million dollars,' she adds. Except when it comes to 401(k)s and target date funds. T his does not come without risk. In a recent report, Moody's laid out a series of worries about the push to put private assets into ordinary Americans' portfolios. A big one is that Main Street investors, used to quick access to their cash, will create liquidity risks. 'These fund structures haven't really been tested extensively at periods of market stress,' says Alexandra Aspioti, a Moody's senior private credit analyst. 'Retail investors tend to be more sensitive to market volatility and increase redemption requests during periods of stress—this in turn can lead to further volatility.' Another worry Moody's describes: All those extra dollars sloshing around will encourage private asset managers to make dumber deals, particularly in credit. The credit risk is real and growing. Private lenders face fewer regulatory requirements than traditional banks, which is largely why they financed 77% of private equity buyouts last year, according to Preqin. Private loans don't trade and are valued only quarterly, with estimates that are often well off the mark. The International Monetary Fund warned last year that private lenders' connections to private equity-backed companies could allow systemic problems to go undetected for too long. As for retail investors and liquidity risk, there have already been scares. Blackstone had to limit redemption requests in its real estate income trust in late 2022 and most of 2023 when individuals spooked by rising interest rates raced for the exits. The market rebounded, and Blackstone is back to honoring 100% of repurchase requests, but there's little assurance that a similar situation won't result in a future crash. Another concern: As exit deals from private equity funds have slowed, a fast-growing secondary market, including so-called continuation funds, has emerged, with a record $160 billion in transaction volume in 2024. With continuation funds, asset managers in essence are using new investors' money to pay off old ones. Orlando Bravo, cofounder and managing partner of $184 billion (assets) Thoma Bravo, has cautioned that in this financial game of musical chairs, retail investors who are late to the party might get saddled with continuation funds with underperforming, hard-to-sell assets. Wellington's Burgess promises that individual investors in the Wellington-Vanguard-Blackstone product will have access to the same private funds as Blackstone's institutional clients—not the rejects. And he insists that the proposed fund will be able to withstand waves of withdrawal requests. 'There's 70% of it that's public, and that's a really big buffer to make sure you can maintain your liquidity profile,' he says. 'We've tested it in [severe] down markets, and it's gone to a level that's still below what we would consider to be a pain point.' Then there are the objections raised by the Biden administration: that private assets might be too expensive and complex for 401(k)s. 'These products are harder to understand and harder to value—it's very different from looking at individual stocks traded on the public market or mutual funds,' says Lisa Gomez, who served under Biden as the Department of Labor's assistant secretary for employee benefits security. But private asset managers are betting that the Trump administration will dismiss such worries and are hoping it—and the Republican Congress—will provide some protection from worker lawsuits for employers who offer the new products in their 401(k)s. That could further line the pockets of the wealthiest people in finance. It also could be great for individual investors, who will no longer be locked out of the type of lucrative private investments that have made the nation's colleges and pension plans so rich for so long. With so much information soon to be available at their fingertips, retail investors might prove to be smarter than Wall Street thinks. They need to keep an eye on fees, and there is risk, for sure. But blue-chip financials like Blackstone, Vanguard and Wellington are going to be extra-careful not to saddle retirement savers with lousy private investments, thereby damaging their brands. Other outfits might be less cautious—caveat emptor—but democratizing investing is well worth the attendant dangers. More from Forbes Forbes Blackstone's $80 Trillion Opportunity By Sergei Klebnikov Forbes Go Back To The Office, But Bring Your Own Snacks. Blame Congress. By Kelly Phillips Erb Forbes The Best Places To Retire Abroad In 2025 By William P. Barrett Forbes Inside America's Top Small Business Bank By Brandon Kochkodin Forbes You're Not Imagining It: AI Is Already Taking Tech Jobs By Richard Nieva Forbes Waymo Vets Are Automating Construction Sites With Self-Driving Dirt Diggers By Alan Ohnsman
Reuters
16-07-2025
- Business
- Reuters
Jio Blackrock gets Indian markets regulator nod to launch four passive funds
July 16 (Reuters) - Jio Blackrock has received approval from India's markets regulator to launch four passive index funds, the Securities and Exchange Board of India's website showed on Wednesday. The funds will mirror four indices, namely, Nifty Midcap 150 (.NIMI150), opens new tab, Nifty smallcap 250 (.NISM250), opens new tab, Nifty Next 50 (.NN50), opens new tab and the benchmark index tracking Indian government bonds with 8–13 years maturity (.NIFGS813), opens new tab. Jio BlackRock, a joint venture between billionaire Mukesh Ambani's Jio Financial Services ( opens new tab and BlackRock (BLK.N), opens new tab, plans to launch nearly a dozen equity and debt funds in India by year-end, Reuters reported last week. The asset manager is entering the country's 72.2-trillion-rupee ($844 billion) mutual fund market with a mix of active and passive offerings, aiming to leverage its digital reach to sidestep traditional distributor networks. The asset manager has raised over $2.1 billion across three debt mutual fund schemes, attracting investments from 90 institutional investors and 67,000 retail investors so far.
