The $29 Trillion Opportunity

Private equity and credit firms are setting their sights on the country's vast retirement savings—which should make the markets fairer for everyone, so long as customers have their eyes wide open

- By HANK TUCKER AND SERGEI KLEBNIKOV

Jack Bogle became a legend by popularising 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 percent a year) and a hefty cut of profits (typically 20 percent). 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 co-founder 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.