Many investors are familiar with private equity companies, such as Apollo Global Management (NYSE:APO) and Blackstone (NYSE:BX), but getting into those doors is difficult to say the least.
Clients of private equity firms are usually endowments, institutional investors, pension plans, and ultra-high net worth investors. Still, this territory isn’t off-limits to ordinary investors as they get into the game via individual stocks or exchange traded funds, including the Invesco Global Listed Private Equity ETF (PSP). Indeed, some investors could well be interested in PSP today.
“Another reason behind the growing interest in private equity: Companies are remaining private longer. The number of publicly traded companies in the United States has significantly declined over the past couple of decades. At the same time, the private market is home to about 1,000 unicorns–companies valued at $1 billion or more that are available only to select investors through private channels,” writes Morningstar analyst Amy Arnott.
PSP, which tracks the Red Rocks Global Listed Private Equity Index, is home to 80 stocks, and it has the flexibility to go beyond traditional private companies, offering investors exposure to business development companies (BDCs) and master limited partnerships (MLPs) as well.
While the fund is home to traditional private equity firms, such as Blackstone and KKR (NYSE:KKR), a slew of BDCs are on its roster, and PSP also features exposure to holding companies such as Graham Holdings (NYSE:GHC) and Barry Diller’s IAC/InterActiveCorp (NASDAQ:IAC).
Owing to its exposure to BDCs and MLPs as well as some decent dividends in the standard private equity space, the $237.6 million PSP is a credible income play, as highlighted by a dividend yield of 6.23%.
PSP may not be for every type of investor, but for those interested, it is one of the more viable entries into a world that’s largely closed to regular market participants.
“The large dollar amounts required to invest in private equity are one of the biggest negatives. At a minimum, investors must meet accredited investor requirements, which generally require annual income of at least $200,000 (or $300,000 joint income) for the two previous years as well the expectation that income will reach the same level in the current year,” concludes Arnott. “Investors can also be considered accredited investors if they have a net worth (either individually or with a spouse) of at least $1 million or have certain roles with the company issuing unregistered securities; that is, a private equity firm.”
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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.