Investors can gain exposure to private equity investments through exchange traded funds, which have delivered impressive returns with attractive yields.
Private equity ETFs hold companies that are somewhat financially complicated in that they use leverage and are heavily transaction-oriented, writes Roger Nusbaum for TheStreet. However, the funds come with some robust yields.
Private equity has also contributed to the success at large college endowments. For instance, Yale’s endowment announced that it has 31% to private equity, down from 35%, but the asset is still the endowment’s largest weighting.
The PowerShares Global listed Private Equity Portfolio (PSP) is the largest private-equity related ETF in the space, with $461.7 million in assets under management. PSP has a 9.88% 12-month yield. [Business Development Company ETFs Generate 7% Yields]
Still, 2013 has been kind to private equity firms such as Blackstone Group LP, Bain Capital LLC and KKR. Soaring stock prices have boosted the value of the firms’ equity holdings while also generating increased interest in IPOs, giving private equity firms another avenue with which to generate cash. Additionally, “red-hot debt markets have enabled private-equity owned companies with rising profits to take on new debt to fund payouts to their owners in record volumes,” reports Ryan Dezember for the Wall Street Journal.
Most of the ETF’s holdings are managed pools of capital and they issue their own expense ratios, which are typically higher. PSP will have to disclose its own expense ratio, which is 0.50%, along with the ”acquired fund fees & expenses,” which is a 1.49% expense from the managed pools.
PSP’s top country allocations include U.S. 41.0%, U.K. 16.3% and France 7.8%.
The ETF is up 32.0% year-to-date.
The relatively new ProShares Global listed Private Equity ETF (PEX) also tracks a group of companies that are actual managed pools of capital with an exchange listing.
The fund has not traded long enough to show a trailing 12-month yield, but it does have a 4.71% 30-day SEC yield.
PEX, which tracks the LPX Direct Listed Private Equity Index, is up 11% since its late February debut. The fund had almost $6 million in assets under management at the end of the second quarter, according to ProShares data.
The ProShares’ fund’s regional allocations include U.S. 47%, U.K. 19% and Europe 18%.
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