The United States Oil Fund (NYSEArca: USO) tumbled nearly 5% on Monday on volume that was about 50% higher than the daily average, bringing its three month loss north of 39%.
As has been widely noted as USO and other futures-based oil ETFs have plunged, there have been plenty of other ETF victims. That list includes sector, international and single-country funds. It turns out that high-yielding private equity ETFs have also been crimped by oil’s slide. [Oil Saps Frontier Market ETFs]
While nearly as startling as oil’s decline, the PowerShares Global Listed Private Equity Portfolio (NYSEArca: PSP) and the ProShares Global listed Private Equity ETF (BATS: PEX) have shed an average of 3.3% over the past 90 days, declines that are all the more disappointing when looking at a 6.4% jump for the Financial Select Sector SPDR (NYSEArca: XLF).
Private equity firms, including some that dot the lineups of PEX and PSP are major energy investors. Apollo Global Management (NYSE: APO), Blackstone (NYSE: BX) and Carlyle Group (NYSE: CG) are among the private equity firms that have lost $11.7 billion in bets on 27 publicly traded energy companies since June, report Devin Banerjee and David Carey for Bloomberg.
The $528.7 million PSP, which allocates over 60% of its weight to buyout firms based outside of the U.S., features a 5.1% weight to a Blackstone derivatives product as well as a combined 4.7% weight to shares of Apollo, Carlyle and Blackstone.
PEX, which had $10.1 million in assets under management at the end of the third quarter, does not feature exposure to those stocks. PSP and PEX have trailing 12-month trailing yields of 10.5% and 11.3%, respectively. [Unique Sources of ETF Yield]
Losses for private equity-backed energy companies have been severe. For example, Laredo Petroleum (NYSE: LPI), EP Energy (NYSE: EPE) and Kosmos (NYSE: KOS) have plunged an average of 39% over the past 90 days, nearly triple the loss for the Energy Select Sector SPDR (NYSEArca: XLE) over the same period. Each of those companies features a private equity firm as its largest shareholder, according to Bloomberg.
Private equity firms that hold high-yield corporate bonds could feel an added pinch. Ongoing weakness in oil prices could create added stress for already cash-strapped high-yield E&P issuers. With oil prices tumbling, production costs at various shale formations high and the ability of some shale operators to generate cash challenged, some money managers are forecasting a raft of junk defaults in the energy sector. [Warnings for Junk Bonds With Big Energy Exposure]
PowerShares Global Listed Private Equity Portfolio
