Adding Private Equity to an ETF Portfolio

by: David Jackson

Jonathan Clements, author of the WSJ Getting Going column, suggests ways that retail investors can add private equity as an asset class to their portfolios. He names 10 closed-end funds. Among the funds are: ACAS ALD BBDC CSWC GLAD MVC RAND TINY.

Quick comments:

  • The funds are business development corporations, which lend to private companies and often take equity stakes.
  • Clements warns that these funds are not for the fainthearted. Allied Capital, for example, " is probably the best known BDC, and it has a fine track record. But for the past three years, it has been under assault from short sellers, who claim Allied is overvaluing its assets. The Securities and Exchange Commission and the U.S. Attorney for the District of Columbia have also made inquiries that apparently relate to Allied's portfolio valuation. An Allied spokesman declined to comment."
  • The ticker symbols of the funds are: Allied Capital ticker is ALD, American Capital ticker is ACAS, Brantley Capital ticker is BBDC, Capital Southwest ticker is CSWC, Equus II ticker is EQS, Gladstone Capital ticker is GLAD, Harris & Harris ticker is TINY, MVC Capital ticker is MVC, Rand Capital ticker is RAND.
  • Clements favorite of the group seems to be Capital Southwest, as "it has earmarked $29.37 per share as a reserve against future taxes. If you add that reserve to its published NAV, thus making its NAV comparable with those of other funds, Capital Southwest's shares trade at a 27% discount".
  • The full article (subscription required) is here.

Capital Southwest (ticker: CSWC) chart below.