The largest funds investing in private equity are having a banner year, and investors can get in on the action with exchange-traded funds (ETFs) like the Invesco Global Listed Private Equity ETF (PSP).
Private equity exposure was once the realm of the uber-wealthy, but ETFs have given investors access to this niche corner of the capital markets. More specifically, PSP offers exposure to private equity opportunities in the convenience of an ETF wrapper.
“This ETF is among the more unique exchange-traded products available to U.S. investors; it offers a way to invest in publicly traded private equity firms,” an ETF Database analysis explained. “This sector of the market likely receives little allocation in most portfolios, and as such PSP can offer access to an asset class that most investors generally overlook.”
PSP is based on the Red Rocks Global Listed Private Equity Index. The Fund will normally invest at least 90% of its total assets in securities, including American depositary receipts (ADRs) and global depository receipts (GDRs) 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). The Fund and the Index are rebalanced and reconstituted quarterly.
Before diving into private equity, investors need to understand the inherent risks.
“It should be noted that private equity firms can exhibit significant volatility, and the downside risks in unfavorable environments can be significant,” the ETF Database analysis said further.
A Banner Year for Private Equity
2021 is giving investors more reason to get a piece of private equity. As the global economy continues to heal and return to pre-pandemic levels, private equity deals are heating up for the biggest players.
“This year is looking to be a banner one for private equity’s mega-funds, with the likes of Hellman & Friedman closing its 10th namesake fund at $24.4 billion and The Carlyle Group reportedly eyeing $27 billion for its next flagship vehicle—in what would be the largest private equity vehicle of all time,” a Pitchbook article reported.
“In all, 12 buyout and growth mega-funds—defined as any fund that has raised over $5 billion—have already closed this year. For context, 18 mega-funds were closed in 2019, and 16 in 2020,” the article added.
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