These days, investors are hearing more and more about private equity thanks in large part to a spate of deal-making by the likes of Blackstone Group (NYSE: BX), KKR and others. However, private equity can be a difficult asset class to access for all but professional and ultra-high net worth investors.
The PowerShares Global Listed Private Equity Portfolio (NYSEArca: PSP) shifts that paradigm and does so with a tempting 30-day SEC yield of almost 4%. PSP tracks the Red Rocks Global Listed Private Equity Index.
“The Fund will normally invest at least 90% of its total assets in securities, which may include American depository receipts and global depository receipts, that comprise the Index. The Index includes securities, ADRs and GDRs of 40 to 75 private equity companies, including business development companies (BDCs), master limited partnerships (MLPs) and other vehicles whose principal business is to invest in, lend capital to or provide services to privately held companies (collectively, listed private equity companies),” according to Invesco.
PSP holds 71 stocks, nearly 71% of which are classified a financial services firms.
The PSP Perspective
ETF investors can tap into the private-equity space by looking to an ETF strategy that attempts to replicate the long-term return characteristics of diversified private equity allocations.
“Within private markets, each of private equity, private debt, and property investments were able to outpace overall private market growth in 2018,” according to Seeking Alpha. “This large difference in growth rates between private markets and the global investment market is the biggest difference we have observed since 2011 and underscores how strong the shift away from listed to unlisted investments is at the moment.”
Specifically, private equity funds try to improve operations; advise, monitor and incentivize management; allow management to focus on long-term value, and secure preferred access to financing. These private equity strategies also exhibit several passive components, including the ability to buy firms with specific characteristics, hold positions for long periods, double the leverage and conservatively mark a portfolio.
“While the level of dry powder bears watching, a closer analysis of the dynamics at work today suggests there’s little danger of the buyout industry falling too far out of balance,” notes Seeking Alpha. “Based on current deal values, the dry powder held in buyout funds today represents three years of investment, vs. 4.6 years in 2007 and 2008. That duration is well below the buyout industry’s typical five-year investment time frame, suggesting that GPs have time to get unspent capital into the market.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.