Private equity has long been considered a form of alternative investments that is able to generate superior returns compared to the traditional public equities asset class. It is not uncommom to see top-quantile funds delivering mid-teens to mid-twenties annualized returns, while the usual broad market equity funds like S&P 500 index funds deliver an annualized return of roughly 6%. Institutional investors, such as pension funds and endowment funds, have been increasing allocating larger portions of their assets into this asset class.

Such investments, though, generally have a high barrier of entry. It not only requires large amount of capital commitments (usually starting from millions), but also strong relationships with the general partners in order to gain access to certain well performing funds. The illiquidity and long-term horizon nature of private equity funds also prevent investors with different constrains from participating.

To mintigate these issues, there are publicly-traded / listed private equity funds avaialble with minimal investing requirements. These are usually closed-end funds listed on major stock exchanges and are traded like any other stocks and ETFs. In particular, many of these funds are traded in London Stock Exchange.

Below are some most common types of publicly traded private equity investment vehicles, and some commonly misunderstood investments that many investors get confused about:

  • Specialized Funds / Stand-alone Funds: these funds generally represent a single strategy within the private equity space, such as Buyout, Growth, Venture Capital and Secondaries.
    • Example: CVC Credit Partners – focused on european senior secured loans and other sub-investment grade corporate credit; listed in LSE with ticker CCPG;
  • Fund of Funds: these funds act as limited partners and invest in funds managed by general managers like Blackstone, KKR, Warburg Pincus and TPG.
    • Example: Pantheon International Plc – private equity fund-of-funds investment trust with exposure in the USA, Europe and Asia; listed in LSE with ticker PIN;
  • BDCs: BDC is a special type of investment company in United States that focuses on equity or debt investments in small-to-mid-size businesses.
    • Example: Appollo Investment Corporation – a BDC that primarily invests in middle-market companies in form of mezzanine and senior secured loan; listed in US with ticker AINV;
  • Listed Managers / General Partners (GPs): these are the manager of private equity funds listed on a stock exchange; unlike invetors in the funds directly, investors in managers / GPs are entitled the profits derived from the managers themselves, who generate such profit by collecting management and performance fees on assets they advise.
    • Example: Blackstone Group LP – an alternative investment manager listed in US with ticker BX;

The advantages of private equity in the form of a publicly-traded vehicles are obvious: intraday liquidity, minimal investment requirements and greater transparency. However one may also pay attention to the hidden costs behind, such as the bid/ask spreads for illiquid names (which is generally the case for most funds), discount to NAVs (some funds might consistently trade at prices lower than their NAVs), consistency in its investment strategies and fitness with investor’s overall objectives.

To mimic the risk/reward profile and the cash flow patterns of traditional private equity funds investments where capital are committed and called instead of a one-time payment, proper margin and leverage might be applied.

To learn more about the publicly-traded private equity funds investment, investors can refer to below wesbites for furthur resources:

  • LPeC: Listed Private Capital, where you can find the list of members here

Disclaimer: the content is this article is for information purpose only and do not constitute any investment advice or solicitation. Investment invoked risk and investors might loss substantial or even all portion of their capital. The author held, is holding and might hold long or short positions in the securities mentioned in this article, readers should notice the potential conflicts of interests involved. Investors should observe specified rules and regulations when investing in vehicles mentioned in this article.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: