FlexShares, the ETF business of asset manager Northern Trust Asset Management, has introduced its listed private equity ETF on London Stock Exchange.
Marie Dzanis, Head of Northern Trust Asset Management for EMEA.
The FlexShares Listed Private Equity UCITS ETF is now available to trade on LSE in pound sterling under the ticker FLPE LN.
Since debuting on Euronext Amsterdam (Ticker: FLPE NA) in December 2021, the fund has accumulated $150 million in assets.
It is passported for sale in Austria, Denmark, Finland, Germany, Ireland, Netherlands, Sweden, and the United Kingdom.
Marie Dzanis, Head of Northern Trust Asset Management in EMEA, said: “The private equity market is growing, and investors want access. FLPE was developed in direct response to our client’s demand for private equity exposure which traditionally has been a difficult asset class to access. This product offers the ability to capture unique pockets of the market and combines our more than a decade of experience developing ETFs to deliver a low-cost, liquid product that can meet client needs.”
Listed private equity refers to publicly traded companies that invest capital in privately-held enterprises.
Private equity investment strategies typically aim to generate a return by identifying private enterprises with potential and providing them with long-term capital and management expertise in order to help them expand, introduce new products, or restructure.
For investors, alternative asset classes such as listed private equity offer their own unique risk and return profiles and may serve as important portfolio diversifies due to historically low correlations with equities and bonds.
Listed private equity ETFs also enjoy key benefits over traditional private equity exposure including enhanced liquidity and transparency, smaller minimum investment requirements, and the removal of layered fee structures.
Methodology
The fund tracks the Foxberry Listed Private Equity SDG Screened USD Net Total Return Index which starts with a global universe of stocks that have market capitalizations greater than $120m and average daily trading volumes above $400,000.
Index provider Foxberry harnesses the capabilities of impact intelligence platform HolonIQ to screen the universe for companies that fit the private equity theme.
Eligible entities include those that are classified as ‘private equity’ within well-known industry taxonomies and those whose main business activities involve investing in companies or engaging in leveraged buyouts and management buyouts.
HolonIQ then assigns each eligible security with a Private Equity Purity Score, ranking securities on a scale from zero to five.
The methodology removes firms with a Private Equity Purity Score of zero or one, as well as violators of UN Global Compact principles and companies whose operations are deemed to be detrimental to certain UN Sustainable Development Goals.
The remaining constituents are weighted according to the product of their float-adjusted market capitalization and their Private Equity Purity Score while capping any single stock at 9%.
The index is rebalanced on a semi-annual basis.
The index comprises approximately 100 constituents. As of 8 February, stocks from the US account for 42.1% of the total index weight with the next-largest country exposures being the UK (13.1%), Canada (12.1%), China (9.1%), and Switzerland (7.2%).
Notable positions include Blackstone (10.1%), KKR (9.3%), Prosus (9.0%), Brookfield (9.0%), Partners Group (6.9%), 3i (5.6%) and Apollo (5.3%).
The ETF comes with an expense ratio of 0.40%. Income is accumulated within the portfolio.
Other notable private equity ETFs in Europe include the $1 billion iShares Listed Private Equity UCITS ETF (IDPE LN) from BlackRock and the $380m Xtrackers LPX Private Equity Swap UCITS ETF (XLPE LN) from DWS. These funds come with TERs of 0.75% and 0.70% respectively.