5 Ways For Retail Investors To Access The Private Equity Sector: From ETFs To Online Platforms

The importance of retail investors cannot be underestimated. Last year, in the United States, they contributed approximately a fifth of all stock trading volume. 

Particularly in developed markets, legislation has historically aimed to protect retail investors—those who, because of their net worth or income level, cannot be considered accredited—from excessive risks, especially since many alternative investments tend to be more uncertain and have less liquidity. However, this limits their opportunities to get exposure to sectors like private equity. 

In this article, I will share five ways in which retail investors can invest in PE, and be a part of this industry that controls over $11.7 trillion in assets.

#1: Buy stocks of private equity funds in the public markets

Some private equity firms are actively traded on the stock exchange, including behemoths such as Apollo, Blackstone, KKR, and EQT. Hence, they are a liquid instrument available to individual investors with a brokerage account. 

By investing in stocks of publicly traded private equity firms, retail investors can capitalize on the benefits that private equity has to offer without the need for large capital commitments or the typical long-term horizons associated with private equity ventures. 

#2: Evergreen funds

Evergreen funds represent another unique investment proposition for investors. Since they are open-ended, investors have a flexibility to enter and exit such funds on a periodic basis which allows them to maintain their liquidity level while potentially benefiting from the fund’s growth potential. Investment in evergreen funds, previously accessible to qualified buyers only, is now witnessing expansion into accredited investors space, with much lower investment thresholds. There are also cases, although not many, when investment companies become publicly traded which further expands their universe of potential investors.  

Like a conventional PE fund, an evergreen fund might acquire stakes in private companies and invest in real estate, infrastructure, or other projects. It is also intrinsically designed to operate indefinitely, which provides investors with flexibility both for capital contributions and redemptions. 

#3: PE-specific exchange-traded funds (ETFs)

Specialized private equity ETFs are designed to track the performance of private equity investments or private equity-related indices. This is similar to what an indexed fund can do with the S&P 500 or the Dow Jones Industrial Average. PE-specific ETFs generally invest in a diversified portfolio of private equity firms and other related securities, for example, real estate firms. 

As an example, the Invesco Global Listed Private Equity ETF fluctuates based on the performance of various global PE firms including Carlyle, KKR, Onex, and TPG. 

#4: Crowdfunding platforms

These platforms are generally open for retail investors, with certain regulatory limitations, and allow them to invest relatively small amounts of money in private companies. Examples include Republic, Wefunder, and SeedInvest where one can find multiple investment opportunities done under Reg CF, with minimum checks starting from $50-200. 

By leveraging technology, crowdfunding not only democratizes the opportunity to raise capital, but also provides individuals with a broad range of investment propositions. 

#5: Online investment platforms & banks

Particularly among high-net-worth individuals, online investment platforms have become increasingly popular. However, there is, still, a significant gap in this market. Some large banks may also offer select private equity or venture capital investment opportunities to their clients, but the scope of these offerings is considerably limited. 

This situation is gradually changing, given that many financial institutions and asset managers are evolving into ecosystem organizations and integrating various product offerings into their platforms. This growing trend involves, firstly, attempts to create tradable exchange instruments, such as ETFs and evergreen funds. Secondly, repackaging individual private placements into securities, so that they can be offered by banks to their customers.

This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.