Vanguard Group assets have surged to a record $3.4 trillion, with investors pumping in nearly $200 billion so far this year (after a record $215 billion last year), plus investment profits. The Malvern mutual fund giant, with its low-fee indexed and managed funds, adds extra to investors' wallets ($14 billion last year, if you consider what they would have paid other fund companies, at higher industry-average fees), says Vanguard spokesman John Woerth.

But Vanguard is low-balling the value of an asset in every one of its investors' portfolio: shares of Vanguard Group Inc. itself, the fund management and service company that is owned by Vanguard's funds, in an arrangement Vanguard calls "unique" in the mutual fund business.

How much is Vanguard worth? As a private company, you can't buy Vanguard Group shares on the stock market. Let's compare to other big fund managers who are publicly-traded: BlackRock (with $5 trillion in client assets, a third larger than Vanguard, and $15 billion in yearly revenues, at least triple Vanguard fees) has a stock market value of $58 billion. Federated Investments (with $350 billion in assets and $900 million in revenues, both a fraction of Vanguard's), is worth $3.5 billion. That implies a back-of-the-envelope value for Vanguard Group could reach $10 billion or more, with every Vanguard fund shareholder owning a piece. 

Yet Vanguard Group reports its valuation to investors and the Securities and Exchange Commission at a modest $250 million, a small fraction of what its assets and revenues would appear to command on the open market.

In annual reports to shareholders, each Vanguard fund lists its investment in Vanguard Group, and the stake the fund owns, alongside its other stock and bond investments. In the Vanguard U.S. Growth fund, for example, the share of Vanguard Group is listed at $604,000, or "0.24% of Vanguard's capitalization," implying a total value for Vanguard Group of just over $250 million. Other Vanguard funds' data yield the same valuation.

This $250 million does indeed represent "the total amount of capital contributed to Vanguard by all of the member funds," spokesman John Woerth affirmed. Not a current market value.

Isn't this like giving investors an old initial public offering stock price, instead of today's quote? "Vanguard's a private company, so we do not think about a 'mark to market' valuation because there is no market for our shares," Woerth told me.

Can't fund managers estimate private-company values? The Securities and Exchange Commission requires market prices for non-traded as well as listed stocks. In its guide to securities valuations in mutual fund portfolios, the SEC says funds are to report quoted prices for all securities; "when market quotations are not readily available, a fund must use fair values, as determined in good faith by the fund's boards of directors, to value its portfolio securities and other assets."

Accordingly, Vanguard estimates prices, not just for the 5% of U.S. stocks and vast portfolios of bonds it owns, but also for private-company shares in its portfolios. See, for example, the non-traded Uber shares reported in Vanguard's U.S. Growth fund at . (As the Wall St. Journal noted last week, Vanguard this summer updated its estimate of Uber's share value, which is, incidentally, higher than rival Fidelity said Uber is worth.)

Uber shares "are valued by our pricing review committee" using "market valuations of publicly-traded peers," as well as private transaction prices, Woerth confirmed.

Why not do the same with Vanguard Group's own shares?

Vanguard is different, Woerth told me: "The shares in Vanguard held by the funds cannot be sold or transferred to third parties, so there is no 'market' value for the shares and, as a result, no public valuation of the firm by any standard measure."

Yet Vanguard does provide some guidelines, both for transferring Vanguard Group shares, and for valuing them, in the Fund Service Agreement between Vanguard and its funds (as amended in 2009) : 

The agreement calls on funds to value Vanguard Group shares at "fair market value," compliant with Generally Accepted Accounting Principles (GAAP), when funds transfer shares of Vanguard Group to one another due to changes in relative fund size. The agreement adds that Vanguard funds "shall surrender" Vanguard Group shares, if the funds someday end the service agreement -- and that Vanguard Group will pay them in exchange, not the fund's original capital investment (the value now reported to shareholders), but  "its proportionate share of the actual value of all assets of the (Vanguard Group) Service Company which can be reduced readily to cash," plus the right to negotiate additional payment for non-liquid Vanguard Group assets.

What law or promise actually keeps Vanguard shares from being sold or transferred? I asked. After all, we have seen many formerly customer-owned banks (PSFS) and insurers (Provident Mutual) converted by astute managers to stock corporations (sometimes very profitably).

This won't happen with Vanguard, Woerth assured me, "most importantly because it would not be in the best interest of Vanguard fund shareholders." 

In short: Vanguard investors hold in their fund portfolios shares of a vastly successful corporation -- their own -- whose equity appreciation they are not to touch. Or count.