The investing landscape is littered with vehicles that have auras of exclusivity. It feels as though it’s off-limits to ordinary investors. Hedge funds and private equity rank highly on that list.
Regarding private equity, that is indeed exclusive territory. Investments made by companies such as Apollo Global Management (APO), Blackstone (BX), and CVC Capital Partners (CVC) are typically inaccessible to most market participants. Those opportunities are typically reserved for institutional investors, endowments, pension funds, and ultra-high-net-worth investors.
Those firms and others invest in and/or control a slew of well-known enterprises. The increasingly savvy world of retail investors know as much. That breeds curiosity and familiarity. Fortunately, “average” investors don’t need to wait to become immensely wealthy to get into the private equity game. Many of these firms are publicly traded. And thanks to ETFs like the Invesco Global Listed Private Equity ETF (PSP ), market participants don’t have to stock-pick in this space.
PSP: A Platform for PE Growth
Private equity is alluring to some market participants, but it’s not perfect. Some investments can be illiquid. And the industry has shown some sensitivity to interest rates. That explains why PSP is up just 1.35% over the past year. That’s a period in which the S&P 500 Financial Services Index gained 21.50%.
Still, PSP has some perks. The ETF follows the Red Rocks Global Listed Private Equity Index. PSP focuses on a rapidly growing segment. As BNP Paribas noted, a decade ago, private equity firms managed a combined $2 trillion in assets. That figure tripled by the end of 2023. The bank estimates it will double to $12 trillion by the end of 2029.
“Private equity also offers benefits, explaining the growing interest in the asset class over the last [few] years. First, a very large pool of investment opportunities,” observed Lionel Gomez, co-head of private equity at BNP Paribas.
Another PSP-specific benefit is that the ETF has 73 holdings. That’s a deep bench and one that could work in favor of investors. That’s particularly so if interest rates decline. And that’s because in the current climate, some industries are more hospitable to private equity investment. In other words, these companies need to be agile and flexible. Investors can tap into that diversification and flexibility with PSP.
“In the current environment with high rates, geopolitical tensions and markets moving fast, it’s hard to say that one specific sector clearly stands out. What matters right now is agility. You need to be able to move fast at the same time to select investments very carefully and to be able to adapt when things evolve,” noted Damian Fournier, co-head of private equity at BNP Paribas.
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