The S&P 500 is less than 3% from an all-time high. Six of its 11 sectors are within 5% of an all-time high. But even as the U.S. stock market index proves its resilience during a volatile stretch for investors, more money from within portfolios is expected to shift in to privately traded companies.
Jan Van Eck, CEO of ETF and mutual fund manager VanEck, says the trend of companies staying private for longer rather than seeking an initial public offering is here to stay and it offers new opportunities.
High-profile examples include Elon Musk’s SpaceX, Sam Altman’s OpenAI and fintech Stripe.
According to Van Eck, allocations to private assets will jump from a current average portfolio holding level of approximately 2% to 10% in the years ahead.
Some ETFs have begun to invest small portions of their assets in privately held company shares, including SpaceX, such as the ERShares Private-Public Crossover ETF (XOVR). VanEck has launched an ETF tackling the private opportunity in a different way: taking big positions in the publicly traded shares of the investment giants, including private equity firms and other alternative asset managers, that own many private companies.
The VanEck Alternative Asset Manager ETF (GPZ), which launched this month, has a portfolio holdings list that includes Brookfield, Blackstone, KKR, Brookfield Asset Management and Apollo, which combined make up almost 50% of the fund. TPG, Ares and Carlyle are also big positions, in the 5% range each.
The new ETF extends an existing focus on private markets for VanEck. For over a decade, it has offered investors access to private credit, through the VanEck BDC Income ETF (BIZD), which invests in the business development companies that lend to small- and mid-sized private companies. That ETF has a high level of exposure to Ares, Blue Owl, Blackstone, Main Street and Golub Capital, which make up about half of the fund. It pays a hefty dividend of 11%.
Investing private through a publicly traded ETF
“You have to believe this is a secular trend and growth will be higher than that for normal money managers, including ETF and mutual fund managers,” said Van Eck.
He cautions, however, there is more volatility in these funds compared to the public equity market overall. “You have to size it appropriately,” he added.