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Private Equity For the Rest of Us: Exchange-Traded Funds

My latest for the Philadelphia Inquirer:

Investing in private equity used to be reserved for the wealthy. Only millionaires who were “accredited” or “qualified” to invest the big bucks had money in private equity – essentially, the One Percenters.

Then, some of Wall Street’s biggest private equity firms went public, such as Blackstone Group L.P. (symbol: BX), Fortress (FIG) and Kohlberg Kravis & Roberts (KKR). (Bain Capital L.L.C. remains private, but gained fame when partner Mitt Romney ran as a presidential candidate.)

But their shares often have skimpy dividends. In many cases, private equity firms that went public paid out the largest dividends to their founders, rather than investors in the underlying funds.

There’s another way the rest of us can get into the private equity game – exchange-traded funds, or ETFs. And one nice surprise is that some offer healthy dividend yields.

There are two main private equity vehicles available to the retail public: PowerShares’ Global Listed Private Equity Fund Portfolio (PSP) and ProShares’ Global Listed Private Equity ETF (PEX).

PSP is the more liquid option, with around $500 million in assets and an average daily trading volume of roughly 300,000 shares.

We found someone who recently purchased PSP. He bought it because of the 13 percent yield.

Dan Weiskopf, founder of Access ET Solutions, in New York, said PSP is one of the “best ETFs in this space, where the structure really favors the investor.”

Rapid ratings index

Speaking of exchange-traded funds, James Gellert, chief executive of New York-based Rapid Ratings, says his independent ratings firm competes with the Big Three agencies – S&P, Moody’s, and Fitch.

Much like the Dow Jones or Standard & Poor’s 500 index fund, Rapid Ratings is in discussions to create an investable index and possible ETF, an alternative to the traditional benchmarks.

As of December 2013, Rapid Ratings’ highest-rated sectors included leisure, transportation, and media, while those with a negative bias included forest products, metals and metal fabricators, and oil and gas producers. Stay tuned for more news on this front.



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