ProShares takes on PowerShares' 'PSP' in the growing private-equity ETF segment.
ProShares, the ETF provider known historically for its leveraged and inverse funds, continues its foray into new strategies with today's launch of an ETF that hones in on private equity firms, jumping into a thinly populated space anchored by the veteran PowerShares Global Listed Private Equity Portfolio (NYSEArca: PSP).
The ProShares Global Listed Private Equity ETF (PEX), which will have its primary listing on the BATS Exchange, will track an index from LPX GmbH and invest in up to 30 listed private equity companies, screened for liquidity as measured by trading volume relative to market capitalization.
The fund will have a net annual expense ratio of 2.54 percent, which includes a fee reimbursement of 0.40 percent, and acquired funds fees of 1.94 percent, according to the most recent prospectus. By comparison, PowerShares’ $360 million PSP, which has been around since 2006, has a net cost of 2.32 percent.
PEX is the second private-equity-type strategy to find its way into the ETF market this month. The fund’s launch comes on the heels of Van Eck’s rollout of the Market Vectors BDC Income ETF (NYSEArca: BIZD), listed earlier this month—a fund that invests in 25 business development names.
The timing of this launch seems ideal considering that mergers and acquisitions is a “hot” sector right now, and that interest rates remain low in historical perspective, both of which are good for private equity firms that are highly dependent on debt leverage, IndexUniverse ETF analyst Spencer Bogart said.
“Companies have lots of cash, they’re looking at what appears to be an improving economic environment, and they can borrow at low rates,” Bogart said. “Put them together and you’ve got a bit of a perfect storm for private equity.”
Private equity ETFs provide investors with liquid exposure to the private equity asset class without minimum investment requirements, amounting to immediate exposure to a diversified private equity portfolio, Bogart noted.
“Of course these are standard things for the ETF world, but for people familiar with private equity, it’s very different than the traditional unlisted private equity investments, which usually have high minimum investment amounts, are illiquid and usually lock up your investment for some period of time,” he said.
ProShares defines an eligible listed private equity company as one for which its direct private equity investments—as well as cash and cash equivalent positions and post-initial public offering listed investments—represent more than 80 percent of the total assets of the company.
“Candidates for the index will have a majority of its assets invested in or exposed to private companies or have a stated intention to have a majority of its assets invested in or exposed to private companies,” the company said in the filing.
The strategy, which includes equities of all market capitalization, is rebalanced quarterly.