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.
“The private-equity industry has exploded in size over the past two decades, from $700 billion in global assets in 2000 to $5.8 trillion in 2018,” wrote Joseph Stiglitz in Business Insider. “In the US, it now controls 8,000 companies, more than twice as many as are traded on public markets. This all came about without any debate over whether this immensely influential industry is playing by the right rules.”
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 region 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.
Both funds have been stellar performers—PSP is up 29.87% YTD and PEX is up 22.13%, both based on Yahoo Finance performance numbers.
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