Amy C. Arnott
Amy C. Arnott, CFA, is a portfolio strategist for Morningstar, Inc., provider of independent investment insights in North America, Europe, Australia and Asia. Morningstar.com
The hot investment class called private equity is well-known to big institutions and uber-wealthy families. Now, small investors can get in on it, too. Private equity refers to firms that raise capital from high-net-worth investors to deploy in private investments that don’t trade on a stock exchange. Examples: Private-equity firms are part owners of some professional sports teams…and have snapped up thousands of multifamily apartments and become major landlords in American cities.
Why invest in private equity: Some analysts expect lower returns from the stock market in the next decade. Private equity has become a popular alternative for the potential for higher returns and for portfolio diversification since it doesn’t always move in sync with stocks or bonds. In the past, small investors were shut out of private equity. Reason: The SEC requires you to be an “accredited investor,” meaning you have a net worth of more than $1 million and investment minimums in the millions of dollars. But a handful of mutual funds and ETFs can serve as a proxy for anyone to get exposure, including…
AXS FTSE Venture Capital Return Tracker Fund (LDVIX) combines public-equity investments and derivatives to track returns of the private-equity industry. Performance: 13.76%.*
Invesco Global Listed Private Equity ETF (PSP) passively tracks the performance of 50 to 70 publicly traded private-equity firms around the world, including Blackstone, KKR & Co. and The Carlyle Group. Performance: 10.21%.
Tread carefully if you decide to invest like the wealthy. Private-equity investing carries higher fees, and the underlying investments can be complex, so it’s difficult to assess their real value.
