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 (NYSEArca: 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%.