Vanguard's and Blackstone's plan to bring 'alts' to the masses revealed in SEC filing, but protagonists take passive role, leading analyst to brand the new fund a 'dud'

Vanguard Group and Blackstone announced on April 15 a dream match-up of their companies to bring cheap, quality alts to the masses. But now the industry is getting a wake-up call. 

Less than a month since (May 7), Wellington revealed in an SEC filing -- bursting at the seams with disclosures and unanswered questions -- that, at best, the alpha dogs are mere participants in a Wellington interval fund, similar to a mutual fund but limited to quarterly disbursements. See: Vanguard and Blackstone disclose joint 'initiative' to bring alts to mass investors after private 'talks' leak months ahead of planned news release

Neither Blackstone nor Vanguard are part of the WVB All Markets Fund branding, though “WVB” presumably stands for Wellington-Vanguard-Blackstone, according to Dan Sotiroff, senior manager, research analyst at Morningstar.

“Nobody's slapping their name on this,” he says. 

The apparent co-venture turned out to be very different from the presentation on X by gravitas-laden Vanguard CEO Salim Ramji and Blackstone president and chief operating officer, Jon Gray, says Seth Adam Stuart, a Chicago consultant for alts products.

“Yes, it was supposed to be a Vanguard product and not a Wellington one,” he says. “More of a dud so far.”

Vanguard and Blackstone did not respond to reporters or analysts, citing the “quiet period” that follows SEC filings like this one.

Who's asking?

So how did the Blackstone-Vanguard dream team become a Wellington interval fund less than a month later?

It may come down to Vanguard and its new CEO desiring to show a more aggressive mentality, Sotiroff surmises.

“Sometimes they're a little slow [compared to rivals in embracing new products and services] and this time maybe they're trying to be a little faster.”

Still, the greater “dud,” both analysts presume, is that private/public products are still almost entirely top-down driven, with neither advisors nor investors asking for them.

“This is the latest attempt to merge public and private assets to provide greater access to private investments,” Sotiroff says.

 “These types of funds won’t be a great fit for a lot of investors. They require long holding periods, and they have limited opportunities to redeem shares for cash. 

"They’re more opaque than mutual funds or exchange-traded funds, so investors won’t necessarily know what they’re invested in,” he says.

Jeff DeMaso, editor and publisher of the Independent Vanguard Adviser newsletter, agrees.

“Complexity, illiquidity, opacity, and higher fees do not guarantee better investment outcomes. In fact, they often do the opposite,” he says. 

Begging the question

Ironically, in one specific warning, the Boston money manager acknowledges the young, three-way love affair could go sideways.

“The fund’s initial prospectus runs over 200 pages,” writes DeMaso.

“It includes warnings that it could be negatively impacted if the alliance between Wellington, Vanguard, and Blackstone breaks down.

"It also cautions that the fund may take time to gather assets (reach a critical mass) and build its portfolio."

But it is clear who holds the reins.

 "Despite the high-profile ‘strategic alliance,’ the prospectus states that this is Wellington’s show: ‘Blackstone and Vanguard are not sponsors, promoters, investment advisers, sub-advisers, underwriters or affiliates of the Fund,’” he writes. 

Branding exposures were the bane of the recent Apollo-State Street public-private ETF launch. The Apollo name had to be subtracted under threat from the Securities and Exchange Commission (SEC). See: State Street -- under protest -- caves to SEC pressure to nix 'misleading' 'Apollo' name from its freshly minted alts ETF, among many issues cited in stern regulatory letter

“It's really a Wellington fund," Sotiroff says. “It begs the question: What is Vanguard's role in this? Vanguard’s funds are already publicly accessible, so it isn’t clear why it chose to form an alliance with Wellington and Blackstone.”

Fund mix

The new fund will aim to deliver “attractive risk-adjusted returns.” Though Vanguard may not have a big role, its funds will be Wellington's chief building blocks.

WVB will utilize “Vanguard underlying funds” for 40% to 60% of the stock holdings and 15% to 30% in Vanguard’s actively managed bond funds, DeMaso says, citing the prospectus.

WVB will comprise 25% to 40% private market holdings through various Blackstone funds.

“In other words, with this fund, you too can have your own college endowment portfolio!” DeMaso quips.

But Sotiroff points out that any fund can use Vanguard's funds without making it part of a formal collaboration. 

“Blackstone is different,” he adds. “It's private funds, and that's more difficult to get into.”

Blackstone is midstream of a broader push into making lots of products go mainstream. It hired its first RIA chief, Jennifer Abate, a 30-year veteran with Lazard Asset Management. Blackstone declined to allow her to be interviewed.

The Wellington disclosure shows that WVB will have A, I, and M share classes and that investors can ante up as little as $2,500, but with an upfront sales load of an undisclosed amount, DeMaso notes.

If the ballyhooed Vanguard-Blackstone tie-up lives up to the hype, Sotiroff says, the Wellington product would need to be a forerunner for co-produced investments where Vanguard plays a “bigger role.”