Vanguard Group grew into a $10 trillion financial colossus by pioneering simple, ultralow-cost investing. Its wildly popular index funds proved that people don’t need expensive portfolio managers to pick their investments. These days, the company’s most exciting new product is a striking departure from that playbook—a foray into the world of private markets, where investors pay steep fees for access to complex deals that promise high returns. Wall Street is feverishly embracing private markets and Vanguard, like other giant money managers, wants a foothold in this booming business. A new fund it is developing with Blackstone and Wellington Management will offer a mix of public and private assets. State Street, another big fund manager, joined with Blackstone rival Apollo Global Management to create a 401(k) target-date fund with approximately 10% exposure to private markets. BlackRock is aiming to launch something similar next year. The companies say they want to democratize investing, letting people place bets in areas like private equity and private credit that have long been restricted to pensions, endowments and plugged-in elites. With fewer publicly traded companies to invest in, people need to put money in private markets, they say. The investment firms have something to gain for themselves in this shift. After years of driving down fees, retail fund managers are nearing a wall as what they charge approaches zero . The chance to sell more funds that can charge higher fees would boost revenues for the likes of Vanguard and State Street, which pioneered exchangetraded funds. “They have been preaching low fees and competition, and now they’ve come around to the value of alternative investments in client portfolios,” said Morgan Stanley analyst Michael Cyprys . The companies that create and manage the private funds—Blackstone, Apollo, KKR and others—are hitting their own wall as their privateequity funds , which own unlisted companies, stall. They have focused on private credit , which involves issuing loans to those same sorts of companies, to generate growth. The trillions in savings held by retail fund managers looks like enticing fuel for their businesses. “Everyone’s looking at Vanguard and saying ‘wow, they have a tremendous pile of gold, I wonder if they’d let us have a small slice’,” said Bob Brinker , publisher of a mutual-fund newsletter.