On September 23, the SEC lifted the general solicitation ban on advertising private offerings, a key portion of the Jumpstart Our Business Startups (JOBS) Act enacted earlier this year. This means that private equity firms can begin advertising their funds to the general public, a practice forbidden since the 1930’s.
Although your clients might think that they are in investing in the next Google or Facebook through a JOBS Act investment, advisors should educate their clients on more established methods to obtain exposure to private equity in a more liquid and fee-friendly fashion, such as listed private equity.
The following are the four main publicly available listed private equity structures. Advisors should familiarize themselves with these structures and understand how each can provide diverse, unique benefits for client portfolios.
1. Asset Managers
Investors may be most familiar with this listed private equity structure, which includes managers such as Kohlberg Kravis & Roberts (KKR), The Blackstone Group (BX), and Apollo Global Management (APO). These alternative asset managers provide exposure to private equity returns in two ways: directly, through co-investment in their own private equity funds, and indirectly, through carried interest earned on private company sales. Private equity manager stocks provide liquidity and brand name recognition, but they are one of the least direct ways to gain exposure to private equity in the listed private equity space. Their returns are based primarily on the overall ability to grow assets under management and generate fees, rather than the underlying private company returns.
2. Direct Investment Firms