3 Ways The Small Investor Can Invest in Private Equity

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Private Equity is the hot news item in the press.  High net worth individuals, pension funds, university endowments and foundations are looking for potential outsize returns.  Is this an investment for you?  Well most likely not because you aren't rich enough.  Pension funds, university endowments and foundation own 70% of the assets in the top 100 private equity companies.  The remaining 30% comes from extremely rich people, insurance companies and banks.  The reason why you cannot invest in private equity is because of the SEC regulations regarding being an accredited investor. However, there is a loop hole rather an indirect way for anyone to invest in private equity.   I will not discuss the investment merits of private equity but bare in mind private equity can complicate your taxes and can be expensive to own.

1. Being a pensioner or retiree:  This is pretty easy, if you belonged to a union or a company that invested money into a defined benefit plan (pension).  Chances are your company or union is still invested in private equity.  However, pension plans are in decline with companies offering a cheaper qualified benefit plans commonly known as 401k plans.  So this method is becoming less available to the public. 
2. Owning publicly traded private equity firms.  Many of the top private equity firms are traded on exchanges as equity (stock) or limited partnerships (LP).  Some of the well known publicly traded private equity firms are  The Black Stone Group (ticker: BX), KKR & Co. (ticker: KKR), The Carlyle Group (ticker: CG) and Apollo Global Management LLC (ticker: APO).  Some of these private equity firms are setup as limited partnerships so you will receive a K-1 form to file with your taxes.  This can become really annoying if you own more than one limited partnership private equity firm. 
3. Owning private equity exchange traded funds.  Owning private equity ETFs is the most expensive way to own private equity due to their high net expense ratios.  However, owning these ETFs is considered owning equity and not limited partnerships you will not receive a K-1 form hence no added complication in preparing your taxes.