Private Equity Investments

In an earlier post, we saw that as of June 2005, David Swensen has 17% of Yale’s endowment fund allocated to “Private Equity”.

What are private equity invesments? According to Wikipedia,

Private equity refers to securities in companies that are not listed on a public stock exchange; while technically the opposite of public equity they are broadly equivalent to stocks, though return on investment often takes much longer. As they are not listed on an exchange, any investor wishing to sell securities in private companies must find a buyer in the absence of a traditional marketplace such as a stock exchange. In addition, there are many transfer restrictions on private securities. This long term investment area currently has over $710 billion in assets.

It is usually not very viable for individual investors to invest in private equity investments. This is because minimum investments are usually quite significant, typically $100,000 and up for the first instalment, plus further investments in the next few years (‘drawdown’).

However, Powershares Capital Management LLC recently filed with the SEC to introduce an ETF for private equity investments, called the Powershares Listed Private Equity Portfolio. The fund’s objective is as follows.

The Fund seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Red Rocks Listed Private Equity Index (the “Listed Private Equity Index” or the “Index”).

It will be interesting to see how such a fund works out in the ETF format.

Random list of previous posts:

    Stumble it!

    5 Responses to “Private Equity Investments”

    1. Indexfundfan @ Indextown » Listed Private Equity ETF starts trading on Oct 24 Says:

      [...] Listed Private Equity ETF starts trading on Oct 24 Previously, I wrote about PowerShares’ intention to launch a ETF that invests in private equity. I received an email from PowerShares that this ETF (ticker PSP) will start trading on Tuesday, October 24, 2006. Unfortunately, there is no word on the expense ratio but I suspect it will be similar to other PowerShares products, at 0.6%. [...]

    2. Indexfundfan @ Zecco Says:

      Should I invest in PSP (Listed Private Equity ETF)?…

      Powershare’s Listed Private Equity ETF (ticker PSP) started trading on Oct 24, 2006. The objective of this ETF is to allow retail investors an easy way to gain access to private equity investments. The author shares his thoughts on whether he should i…

    3. Indexfundfan @ Indextown » A closer look at Powershare’s Listed Private Equity ETF Says:

      [...] The objective of this ETF is to allow retail investors an easy way to gain access to private equity investments. Private equity investment is considered by many as an “alternative” asset class. I had previously written a post on private equity investments when the SEC filing for PSP ETF was made. Now that the ETF has started trading and its holdings are disclosed, let’s look at it in more detail. [...]

    4. Sam Says:

      I would stick to investments in BDCs. Either way, the best private equity returns will remain off-limits to smaller individual investors.

    5. Ted Fish Says:

      Sam … isn’t psp a fund of BDCs? Isn’t it therefore safer (thru diversification) than investing in one BDC?