How wealth investors can access private equity today

The financial professional-focused take on “The Lead” newsletter series is dedicated to help financial professionals stay informed about developments, and movements in private capital investing.

Bottom-line upfront

1. Access vehicles for private equity have expanded meaningfully in recent years, providing a practical toolkit for introducing individual clients to an asset class once reserved for large institutions.
2. Three distinct structures, each with different trade-offs among liquidity, exposure type, and complexity, now make it possible to align private equity participation with a client's income needs, risk tolerance, and time horizon.
3. Tax reporting simplification in certain fund structures removes one of the historically significant barriers to private market access for individual investors, making the conversation with clients more straightforward.

Private equity access vehicles: understanding today's options for invidual investors

As the democratization of private markets continues, understanding the practical mechanics of today's access vehicles is essential to help clients evaluate a meaningful allocation to private equity.

The evolution of private equity access for individual investors

For most of its history, private equity was built for institutions, including pension funds, endowments, and sovereign wealth funds. Individual investors were limited to the ultra-wealthy who could write large checks, tie up capital for a decade, and navigate the nuances of limited partnership structures. In recent years, technologies have developed allowing retail investors to gain exposure. While these structures differ in liquidity and complexity, they have expanded access to an asset class whose benefits are well recognized.

'40 Act funds: interval funds and tender offer funds explained

'40 Act funds are private funds offered under exemptions to the Investment Company Act of 1940. These vehicles are designed to work within a regulatory framework familiar to retail investors while still investing in illiquid assets such as private equity. Many of these vehicles are structured as interval funds or tender offer funds. Rather than offering daily liquidity like a mutual fund, they provide periodic, often quarterly, opportunities for investors to redeem shares. They also offer lower minimums than traditional private equity funds and simplified Form 1099 tax reporting in place of the complex Schedule K-1s. Their evergreen structure eliminates capital calls entirely; investors deploy capital upfront and participate in compounding from day one.

Private equity ETFs: indirect access with daily liquidity

Some exchange-traded funds, or ETFs, invest entirely in public private equity firms such as Blackstone, Carlyle, and Apollo. By investing in companies whose business models revolve around private market investing, these ETFs allow individuals to participate indirectly in private equity. Although exposure is diversified and typically limited to mega-funds, these vehicles offer easy access, daily liquidity, and low investment minimums, making them one of the more accessible ways for investors to enter private markets.

Business Development Companies (BDCs) and private credit exposure

A third option is the Business Development Company, or BDC. A creation of Congress under the '40 Act, BDCs encourage investment in small- and mid-size companies. Unlike the options above, BDCs invest in fixed income securities that support leveraged buyouts. Because vehicles are underpinned by private credit, dividend yields play a key role. BDCs can be traded on public exchanges and offer daily liquidity, or be privately sold through wealth management platforms. Although not equity exposure, BDCs still provide exposure to the private equity ecosystem.

Comparing liquidity, exposure and complexity across access vehicles

Each of these vehicles involves trade-offs among liquidity, direct exposure, and complexity. '40 Act funds offer the most direct access to private equity portfolio companies but the most limited liquidity.⁵ PE ETFs offer the most straightforward way to gain access and provide public market liquidity, but access is indirect and prices can be volatile. BDCs are a well-suited choice for investors looking for current income through exposure to private equity financing. Together, these vehicles have expanded the way in which individual investors can efficiently take part in private markets, bringing strategies to them once reserved for only the largest institutions.