Private-equity funds are already hitting their maximum asset caps, leaving many would-be investors out of luck. Alternatively, investors can take a look at the two private equity-related exchange traded funds instead.
For private equity exposure, investors can consider the PowerShares Global Listed Private Equity Portfolio (NYSEArca: PSP) and ProShares Global listed Private Equity ETF (BATS: PEX).
PSP tracks the Red Rocks Global Listed Private Equity Index, which is comprised of 40 to 75 private equity companies, including business development companies, master limited partnerships and other vehicles that invest in, lend capital to or provide services to privately held companies. [Mitt Romney ETF Looks for More Upside]
PEX tries to reflect the performance of the LPX Listed Direct Private Equity Index, which consists of 30 private equity companies. The component holdings will have a majority of its assets invested in or exposed to private companies. The fund holds common stocks issued by U.S. and foreign companies, including business development companies for U.S. domiciled companies.
Private-equity firms are known for raising cash and borrowing money to acquire a company in an attempt to turn around and re-sell them later for a handsome profit. BDCs lend capital or provide services to privately-held companies or thinly-traded U.S. public companies. Since BDCs have exposure to smaller companies, the companies will be susceptible to potential risks involving bankruptcies or defaults.
Private-equity firms are now filling their coffers faster than ever as pension funds, endowments and wealthy individuals want to invest, reports Dawn Lim for the Wall Street Journal.
According to Preqin, the proportion of private-equity funds that reached or exceed the maximum amount set out to raise this year is at its highest since at least 2009. Private-equity firms set a limit on assets raised, or also known as a hard cap, at the beginning of a fundraising process and cannot be exceeded without approval from investors.
About 55% of 280 funds Preqin monitors had reached their hard-cap or surpassed that maximum size as of November 13, compared to 43% of funds last year.