Morningstar - Q2 2022 - 36

Spotlight: Public/Private Markets
EXHIBIT 3
Other Avenues to Private Markets Individuals without the level of wealth required to directly invest in private equity funds
have other ways.
Investment Type
Open-End Fund
Open-End Fund
Closed-End Fund
Closed-End Fund
Name
AXS Thomson Reuters Priv Eq Ret Trckr I LDPIX
Hamilton Lane Private Assets I XHLIX
HarbourVest Global Priv Equity Ord HVPE
Inception
Date
09/18/2015
AXS Thomson Reuters Vntr Cptl RetTrckr I LDVIX 10/01/2014
12/31/2020
Exchange-Traded Fund Invesco Global Listed Private Equity ETF PSP
Closed-End Fund
Exchange-Traded Fund ProShares Global Listed Private Equity PEX
Closed-End Fund
The Private Shares Fund I PIIVX
*Reflects actual expenses for 12-month period ended 01/31/2022; includes performance fees of 1.13%.
Note: Total returns for periods greater than one year are annualized.
Source: Morningstar Direct. Data as of 02/28/2022.
12/06/2007
10/24/2006
Primark Private Equity Investments Cl I PMPEX 08/26/2020
02/26/2013
11/17/2017
Minimum
Investment ($)
5,000
5,000
1,000,000
-
-
1,000,000
-
1,000,000
Prospectus
Adj Expense
Ratio (%)
1.50
1.50
3.50
2.50 *
1.44
2.23
2.67
2.25
Total Trailing Return (%)
1 Year 3 Years 5 Years 10 Years
3.79
-19.51
14.48
19.02
24.86
13.43
19.13 - - -
40.66
3.34
20.17
10.77
8.42
Worst 3-Month
Return Since
Inception (%)
12.76 - -33.19
23.56 - -31.85
-
14.88
11.10
9.19 - - -
8.56
20.28
-23.75
-57.42
-1.79
18.72 - -
7.01 - -37.94
-2.52
roles with the company issuing unregistered
securities; that is, a private equity firm.
Some private equity vehicles may require investors
to meet qualified investor requirements,
which require investment assets of at least
$5 million.
Even for investors meeting these requirements,
investment costs are far higher than those
for publicly available investment vehicles. Private
equity funds typically charge a 2% management
fee as well as additional performance fees
equal to 20% of profits.
Funds of funds offer more diversified exposure
to private equity, but they also involve an
additional layer of fees. The typical private equity
fund of funds collects 1% in management fees
and 5% in incentive compensation,4
which
might seem low for private equity exposure, but
those costs are in addition to the fees on the
underlying funds.
Other Investment Options
For most individual investors, direct investment in
private equity is likely out of reach. It typically
requires a minimum direct investment of at least $1
million, and an investor would need closer
to $20 million to create a diversified private equity
portfolio. This effectively limits direct private
equity exposure to an elite group of ultrawealthy
individuals or family offices.
However, individuals at lower wealth levels
have other options for private equity exposure (as
long as they meet the accredited or qualified
investor requirements). As we mentioned,
Vanguard is now offering exposure to a private
equity fund managed by HarbourVest to
some of its customers. (Vanguard won't disclose
details about the fund, including the required
minimum investment.)
HarbourVest offers at least one other fund
(HarbourVest Global Private Equity HVPE:UK), but
approximately 70% of its shareholders are
based in the United Kingdom, and the majority
of trading volume is in sterling. The fund, like
the other two closed-end funds shown in
EXHIBIT 3 , is structured as a closed-end interval
fund. These funds only allow shareholders
to redeem a portion of their shares on a fixed
schedule, typically quarterly. (See " Interval
Funds Offer a Way Into Private Markets, " Page 48.)
In addition, closed-end funds often trade at
a premium or discount to their underlying
net asset values. This adds another layer of risk;
closed-end fund returns can often diverge
4 Wiek, H. & Carmean, Z., 2020. " Primer on Private Market Access Points. " PitchBook Analyst Note. April 23.
36
Morningstar Q2 2022
from the returns on their underlying holdings
by a wide margin.
The two AXS funds, which are structured as
open-end funds, are the most widely available to
individual investors but don't invest directly
in private equity or venture capital. Instead, they
use a combination of public-equity investments
and total-return swaps to track their benchmarks,
the Refinitiv private equity and venture capital
indexes. Over time, both funds have tracked their
benchmarks fairly closely.
The two exchange-traded funds shown in the
exhibit, which track listed private equity
firms, are also relatively accessible to individual
investors. However, one drawback is that as
an asset with daily trading activity, listed private
equity is inherently more volatile than direct
private equity investment. Another key difference
with listed private equities is that they
provide exposure to a private equity company's
results, not a fund's results.
Role in Portfolio
Private equity is sometimes touted as a portfolio
diversifier, but it's ultimately just equity, not a
separate asset class. Partly because of its
return-measurement issues, it's difficult to pin
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