New fund FMLP backs into solid exposure to the income-oriented private equity space via MLPs.
A new income-oriented ETF offers concentrated exposure to some of the biggest names in private equity, including KKR, Blackstone Group and Icahn Enterprises. The appeal: investing in hard-to-access private firms alongside some of the “smartest guys in the room,” and earning income along the way.
Finding the new fund isn’t easy, however. It’s called the Etracs Wells Fargo MLP Ex-Energy ETN (FMLP).
Notice the absence of any mention of private equity in the name. “MLP Ex-Energy” best describes its exposure.
MLP stands for master limited partnership, a legal structure that passes earnings through to owners without being taxed at the company level, similar to a real estate investment trust.
MLPs are hugely popular in in the ETF form, with about $20 billion total spread across 20 ETFs. (I’m using the terms “ETF” and “fund” to include ETNs—more on the wrapper in a moment.)
However, all existing MLP ETFs focus exclusively on the energy sector, typically on oil and gas infrastructure like pipelines. FMLP is unique in that it explicitly excludes energy firms, leaving it dominated by—you guessed it—private equity firms.
List Of The Listed
FMLP’s roundabout method delivers private equity exposure that stands up well next to two leading funds that take a more direct approach: PowerShares Global Listed Private Equity ETF (PSP | F-56) and the Market Vectors BDC Income ETF (BIZD | D-99).
U.S.-focused BIZD holds only business development companies (BDCs), another structure (along with MLPs) used by listed private equity firms. PSP holds both structures, and, unlike FMLP and BIZD, is global in reach.
I’ve listed top the five holdings for the three funds below.
|KKR & Co LP||10.9%||Ares Capital Corp.||15.8%||Onex Corp||5.9%|
|Blackstone Group LP||10.5%||American Capital Ltd.||10.7%||3i Group PLC||4.9%|
|Lazard Ltd||10.4%||Prospect Capital Corp.||9.0%||Partners Group Holding AG||4.9%|
|Carlyle Group LP||10.3%||Fifth Street Finance Corp.||5.2%||CITI KKR & CO TRS 10/31/13||4.4%|
|Icahn Enterprises LP||10.3%||Apollo Investment Corp.||5.1%||CITI Blackstone TRS 10-31-13 ASSET LG||4.3%|
FMLP data per issuer based on underlying index 6/20/2014. BIZD data per ETF.com as of 6/24. PSP data per issuer as of 6/24/2014.
I assume the “TRS” in PSP’s KKR and Blackstone holdings stands for “total return swap,” and that the economic exposure is similar in nature but not size to the KKR and Blackstone positions in FMLP.
The point is simply that FMLP’s “ex-energy MLP” offers private equity exposure that rivals funds specifically designed for that purpose.
Those with good knowledge of the private equity space probably have strong preferences on one portfolio over another. For the rest of us, FMLP has the appeal of taking concentrated positions in very familiar private equity names. From a more objective standpoint, PSP aligns poorly with the ETF.com benchmark for global private equity, likely due to its tiered weighting system. BIZD fits our benchmark very well for the U.S. BDCs, a subset of the larger private equity space.