ALPS Fund Services and investment advisor Red Rocks Capital have launched a new exchange-traded fund that invests in the common stock of publicly traded private equity firms. The fund is composed of stocks in 30 to 50 domestic and international private equity firms, and its portfolio will have an average market capitalization of around $3 billion (€2 billion), the firms said.
“Private equity has been the cornerstone of institutional investors’ asset allocation strategies for years but, until now, most other investors haven’t had access to this important asset class because of very high investment minimums and a lack of liquidity since investments are typically tied up for more than seven years,” ALPS director Corey Dillon said in a statement.
The private equity ETF, “Listed Private Equity Fund”, will track an index created and managed by Denver-based Red Rocks, “Listed Private Equity Index”. It is the second ETF to track the Red Rocks index; in November 2006 PowerShares Capital Management launched a similar fund.
While the index fund purports to track private equity performance, many of the companies that make up the index are primarily engaged in providing loans to private companies, including Allied Capital, CapitalSource and MVC Capital. Also in the index is Apollo Investment which, while affiliated with private equity giant Apollo Management, primarily provides debt financing to private equity deals.
Other component stocks include those of American Capital Strategies, Safeguard Scientifics, Prospect Energy Corp., KKR Financial, Gladstone Capital, Compass Diversified Trust, CMGI, Internet Capital Group and MCG Capital. All of the underlying stocks are traded on US stock exchanges.
The new fund has been specifically designed for institutions, financial advisors, family offices and individual investors through 401(k) programmes, the firms said. The fund will begin operations on 31 December.
This April Standard & Poor’s, the financial data company and index provider, created a similar index composed of 25 publicly traded private equity entities around the world, to be used as a performance benchmark as well as an “investable” vehicle, S&P said.