The coronavirus outbreak is no doubt wreaking havoc on certain sectors, but one area that’s eyeing opportunity among the doom and gloom is private equity. As businesses like restaurants, cinemas, hotels, and other areas are struggling, private equity is sitting on $1.5 trillion in cash that’s ready for deployment.
Their goal is to scoop up undervalued businesses on the cheap and turn them into profitable powerhouses. In this coronavirus pandemic environment, the opportunities are rife for private equity ventures.
“They have been waiting for this type of market dislocation,” the head of mergers at a major Wall Street firm told CNBC. “I don’t think they wanted something quite this bad, but they did want a pullback in valuation.”
The private equity space is one in which big deals could translate into big gains behind closed doors—the downside is that it was only available to institutional investors and very well-capitalized individuals. However, thanks to the advent of the ETF, private equity is now available to the public via the Invesco Global Listed Private Equity ETF (NYSEArca: PSP) and ProShares Global Listed Private Equity ETF (BATS: PEX).
PSP also allows investors to tap into a sizeable market they may never have known about. Even as lawmakers are trying to implement more regulatory measures on private equity, it’s hard to deny its proliferation over the years.
PSP is based on the Red Rocks Global Listed Private Equity 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). The Fund and the Index are rebalanced and reconstituted quarterly.
As for PEX, it seeks investment results that track the performance of the LPX Direct Listed Private Equity Index. The index consists of up to 30 qualifying listed private equity companies, and the fund invests in financial instruments that ProShare Advisors believes, in combination, should track the performance of the index. It will invest at least 80% of its total assets in component securities.
Furthermore, the fund will concentrate its investments in a particular industry or group of industries, country or regions to approximately the same extent as the index is so concentrated.
PEX seeks to:
- Invests exclusively in a globally diversified portfolio of listed private equity companies whose primary business is direct investments in private enterprises.
- Provides ETF access to listed private equity for investors who either have had difficulty accessing it in other forms or who want more liquidity than is typical of private equity limited partnerships.
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