entering the private equity universe

entering the private equity universe

the world of private equity (PE) has been accessible exclusively to rich and sophisticated institutions. but many in-market participants have argued that retail investors should not be excluded from the PE space, which historically has generated higher returns than benchmark indexes like the S&P500.

 PE has always been a high-risk, high-return space where regulators across the globe have closed the doors for retail investors to participate. along with regulations, the minimum ticket size required to make a PE investment is so high that only high-net-worth individuals (HNIs) can take part in them.

the risks are too high

through alternate investment funds (AIFs), Indian retail investors can invest in start-ups or social venture funds, infrastructure funds, SME funds, PE, and debt funds. but the minimum ticket size to invest is ₹1 crore in any such scheme.

 on top of such a high minimum investment requirement, the fee charged by the fund managers for such schemes is incredibly high, which then trickles down to the actual returns you’re left with.

how to fix the problem

for retail participants to get exposure in the world of PE, the entry barriers like minimum investment need to be low and the fee associated with such a product shouldn’t be too high.

an exchange-traded fund (ETF) can serve both of these purposes.

by design, an ETF can be traded like an individual share and the fees associated with it are usually low. a private equity ETF will have a portfolio of investments in publicly listed PE companies and the units of which can be easily bought and sold like any other listed stock.

for example, the Invesco Global Listed Private Equity Portfolio, which is the largest PE ETF, has assets over $236 million under management and has generated an average return of 15.66% over the last five years.

while such ETF products are missing from the Indian market currently, one could still invest in them under the Liberalized Remittance Scheme (LRS), which allows you to invest up to $250,000 each financial year in overseas markets