Private Equity Investing For Everyone

At the end of 2014, the 50 largest private equity firms had a combined $1.5 trillion in assets under management. Chances are none of those assets were yours, but there is good news for regular investors looking to get on the private equity game.

A fair amount of private equity companies are publicly traded. The better news is that investors do not need to stock pick in this corner of the market because the PowerShares Global Listed Private Equity Portfolio PSP offers access to a basket of private equity firms.

PSP follows the Red Rocks Global Listed Private Equity Index, which “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),” according to PowerShares. 

PSP currently holds 63 stocks, including familiar names such as Prospect Capital Corp. PSEC, Carlyle Group CG and BlackStone Group BX.

While PSP is an interesting ETF, it is not a perfect ETF. As a financial services fund, PSP has not been able to endure that sector's decline this year, but down 10.3 percent year-to-date, PSP is outperforming many traditional financial services ETFs.

The tidy profits generated by private equity firms for the affluent and institutional investors that make their client bases keep those clients coming back, but PSP has its own selling point for income investors. PSP, home to nearly $316 million in assets under management, has a trailing 12-month distribution rate of 11.6 percent, according to issuer data.

That robust yield is compensating investors for risk, risk that includes a top in venture funding that could force some of PSP's holdings to limit investments in the near-term.

As Benzinga reported earlier this year, “According to PitchBook’s annual report, venture capital funding has peaked and is now headed lower. After concerns over rising valuations and constant streams of unicorn births began to arise in 2014, PitchBook notes that investors finally started to become cautious in the space in the second half of 2015.”