Not even the giants of cheap-as-it-gets index investing can resist the allure of private equity.

After years of internal deliberations, Vanguard Group, the House John Bogle Built, with its $6.2 trillion in assets, has decided to open its very first private-equity fund.

The move might strike an everyday investor as out of character for Vanguard. But it shows the gravitational pull asset managers are feeling toward private equity -- and some of the difficulties breaking into the business.

Vanguard’s entrance comes two years after BlackRock Inc. dipped a toe into private equity with its Long-Term Private Capital fund. Other old-school mutual fund companies like Fidelity Investments and T. Rowe Price Group Inc. have also been moving to expand their reach and improve their returns with private markets like venture capital.

“You’re going to see traditional names in mom-and-pop Main Street funds trying to figure out how they add private assets into portfolios and service,” said Benjamin Phillips, a principal at Deloitte Consulting’s Casey Quirk unit.

“They need to think about growth, and the number of public companies are shrinking.”

The moves are expected to help push private equity funds to about $5 trillion by 2023, according to estimates from Preqin, which collects data on alternative assets. Phillips called private-market investing the biggest growth area for asset management companies. A Deloitte report projects it to account for half their revenue growth in the next five years.

The appeal of private markets is twofold: Companies are waiting longer to go public, walling them off to most individual investors. At the same time mutual funds and exchange-traded funds are seeing competition push down fees. While private equity funds charge base fees of about 0.8% on average, passive U.S. equity mutual funds charged about 0.13% last year, according to Bloomberg Intelligence.

Asset managers have been cutting deals and building their own private equity operations for years. In 2003, Franklin Resources Inc. bought Darby Overseas Investments, which has business lines in private debt, private equity and infrastructure around the world. Capital Group entered private equity in 1992.

And it isn’t a sure thing: BlackRock has struggled to meet its $12 billion fund-raising goal for Long-Term Private Capital. It had only gathered $2.75 billion from investors as of April, and struck its first deal in August, a year and a half after its debut. The world’s largest asset manager also purchased private credit firm Tennenbaum Capital Partners in 2018 to expand in alternatives.

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