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The (Limited) Case for Investing in Alternatives

Does Vanguard’s recent private-equity announcement bolster the argument for alts?

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Vanguard’s recent announcement that it is launching a private-equity strategy brings front and center (not for the first time) the question of whether (and to what degree) individuals should allocate some portion of their portfolio to alternatives. Granted, Vanguard is initially making the product available only to institutional clients, but given Vanguard’s vast retail presence, not to mention CEO Tim Buckley’s statement that its partnership with HarbourVest Partners “will present an incredible opportunity” for individuals investors, one suspects that it’s only a matter of time.

The notion of “hedge funds for the masses” is hardly new. The boom in liquid alternative mutual funds after the 2008 financial crisis was supposed to provide individual investors with a tantalizing opportunity to access the same types of strategies typically reserved for institutions and the ultra-wealthy, all at a fraction of the cost and with increased transparency and liquidity. Has the reality matched the hype? Should investors look to take advantage of alternative asset classes, whether in liquid public or illiquid private investment structures?

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Josh Charlson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.