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For years, retail investors have watched private equity from the sidelines, locked out by steep investment minimums and opaque fund structures. But that may be changing, as a wave of new exchange-traded funds (ETFs) promises to bring private market exposure to the public.
These funds may offer a new way to tap into the private equity boom, but they come with tradeoffs every investor should weigh carefully.
Key Takeaways
- ETFs tracking private markets promise more access, but they might not deliver on performance.
- Some experts believe these funds are driven by asset managers chasing fees rather than strong investor demand.
- So far, many of these ETFs have underperformed, with high fees, valuation challenges, and limited exposure to true private equity.
The Great Private Market Migration
Many growth companies are now choosing to stay private, rather than go public and list their shares on a stock exchange. For some ETF providers, this is a business opportunity.
VanEck’s Alternative Asset Manager ETF launched in June and dubbed itself the “first to provide targeted exposure to alternative asset managers” by investing broadly in private equity, venture capital, and private debt. Separately, Vanguard is reportedly partnering with Blackstone to offer retail investors greater access to private markets, though full details haven’t been revealed.
“ETF providers are looking for products where they can charge higher fees,” said Neena Mishra, director of ETF research at Zacks Investment Research. “That is why they are interested in this space.”
Meanwhile, private equity firms are eager to tap retail money. “There’s a lot of money sitting in ETFs and money market funds,” Mishra said.
Improved market access can be good for investors, according to economist John Blank, chief equity strategist at Zacks Investment Research. The minimum needed to invest in traditional private equity funds is generally $1 million or more, while shares of the VanEck Alternative Asset Manager ETF trade at about $27.
“ETFs aiming to mimic private equity strategies, like those tracking publicly traded alternative asset managers, are designed to democratize access to these types of investments,” Blank says. “They offer a potentially more accessible way for a broader range of investors, including retail investors, to get exposure to private markets, sometimes with lower investment minimums.”
Still, the reality may be murkier.
Booming Private Markets
Private markets have grown so much that State Street’s Private Equity Index now includes more than 4,100 funds and over $5.7 trillion in committed capital—more than five times its value of $1.1 trillion upon inception in 2007. Meanwhile, the number of publicly listed U.S. companies has dropped by about 50% since the mid-1990s.
Risks You Need to Know
There are three broad categories of private equity ETFs, according to Mishra: Funds that invest in listed PE firms, like Invesco’s Global Listed Private Equity ETF (PSP) and the ProShares Global Listed Private Equity ETF (PEX); funds that buy small private stakes through special purpose vehicles, like ERShares Private-Public Crossover ETF (XOVR); and funds that target public companies with “private equity-like characteristics.”
But none are true substitutes for actual private equity. In fact, SEC rules limit these ETFs from allocating more than 15% of their assets to private holdings. And what’s left is often invested in companies like Nvidia (NVDA), Oracle (ORCL), and Meta (META).
“These are not real private equity investments,” says Mishra. “They may resemble some characteristics, but investors are not getting access to private dealmaking.”
So if you’re expecting private equity-style returns, think again. Both of the older ETFs—PSP and PEX—have significantly underperformed the S&P 500. PSP and PEX have 10-year annualized returns of 8.7% and 6.8%, respectively, which pales in comparison to the S&P’s nearly 15.6% annualized return over the same period.
Then there’s the question of how private holdings are valued. Mishra points to the XOVR ETF, which gained popularity after investing in Elon Musk’s SpaceX via a special purpose vehicle (SPV). “They haven’t changed the valuation of their SpaceX holding even after news that could affect the company,” she said. “And we still don’t know how much they’re paying that SPV in fees.”
Are You the Right Investor for These ETFs?
Despite the buzz, few private market ETFs have gained traction, and they’re pricey, Mishra noted. For example, long-standing funds like PSP and PEX, which hold stocks of firms like Blackstone and KKR, have about $324 million and $13 million in assets and expense ratios of 1.79% and 2.99%, respectively.
Meanwhile, newer ETFs like VanEck’s Alternative Asset Manager ETF promise broader exposure to private equity, venture capital, and infrastructure, but their structure still limits investors to listed firms.
For those reasons, Mishra is skeptical about private equity ETFs, especially when fees are high. “I don’t really see a reason for retail investors to add private assets to their portfolios,” she said, pointing to better-performing and lower-cost options like S&P 500 or Nasdaq-100 index funds.
“And if you want diversification, gold ETFs are a great vehicle for that,” she said. Some funds, like the SPDR’s Gold MiniShares (GLDM), charge as little as 0.1%
The Bottom Line
Private equity ETFs offer something new: Exposure to a corner of the market that’s long been off-limits to most. But they’re not private equity in a true sense. If you’re looking to diversify, understand that these funds carry real risks, have limited track records, and may not behave like the asset class they aim to replicate.
In other words: Proceed with caution, and don’t confuse access with equivalence. For now, you may be better off with more transparent, lower-cost funds that offer similar growth exposure, without the hype.
