Have you ever tried to find a private equity exchange-traded fund to invest in? There are less than a handful due to the high fees. Have you ever tried to invest in an ETF that focuses on private investing?
As far as I know, there aren’t any. But there should be. Here’s why.
Private Investing Beyond Autopilot
In May, I had the opportunity to write about the pros and cons of Republic’s Autopilot service. As I said at the time, I thought the service was a fantastic idea for new investors getting used to the idea of private investing.
“Until you gain enough experience evaluating private companies, diversification makes sense for most investors. With Autopilot, you tell them the total amount of money you want to invest and also the amount per startup,” I wrote on May 18. “So, for example, you decide you’re willing to invest $1,000 in total and $100 per startup. Autopilot ensures you get the next 10 deals where the minimum is $100 and the deal meets three criteria set by Republic.”
Republic Autopilot, I concluded, made building a startup portfolio of equity crowdfunding investments that much easier. As a mechanism to get you into the world of private investing, Republic’s service is an excellent idea that’s worth the fees.
But what about a service that takes this to another level?
An ETF for Private Investing
The difficulty with this kind of concept is that someone would have to create an investment vehicle to make this a reality. For rich folk, you just put money into a private equity vehicle at Brookfield Asset Management (NYSE:BAM) or one of the other large alternative asset managers.
However, it’s hard for the rest of us to know where to turn for professional advice about private investments. While there are many ETFs available for all kinds of themes, sectors, and market capitalizations, there’s bupkus for equity crowdfunding.
I have a suggestion for an entrepreneurial sort who’s got experience in the ETF world.
I think this person should create a special purpose acquisition company for $50 million to $100 million. The target company would be a business that is currently operating in the ETF or mutual fund industry.
I would then create an actively managed fund that invests in the best equity crowdfunding deals in the U.S., U.K., Canada, and elsewhere where private investing has caught on with investors.
Alternatively, I would take that SPAC money and buy Republic or StartEngine or one of the other big portals and create a fund for investors to participate in for as little as $100.
It’s great there are almost 7,000 ETFs worldwide, but when it comes to private investing, regular investors are out of luck.
There’s a serious gap in the marketplace. Somebody is going to figure out a way to make it happen that’s inexpensive from a fee perspective and, at the same time, a smart way to diversify your retirement portfolio without getting burned.
The Bottom Line
I haven’t had the time to take a closer look at the British marketplace. However, something tells me the equity crowdfunding industry over the pond will figure out how to make this happen before anyone in the U.S. does.
Just call it a hunch.
Here in Canada, where I live, investors won’t see something like this until well into the next decade. Unfortunately, Canadians are prodigiously slow at adapting to change. Oh, we’ll pay big-time fees, but change with the times, not so much.
For now, if you don’t want to do all the heavy lifting that’s involved with equity crowdfunding, Republic Autopilot remains your best option.
“If you’re looking for a way to get involved with some of America’s most interesting private companies, but don’t want to spend all day researching each of the investments, Republic’s Autopilot is an excellent way to passively do so,” I wrote in May. “It’s important to remember the No. 1 rule of investing, however. That is, you must be prepared to lose 100% of your investment, or you shouldn’t play the game.”
So, if Republic’s reading this, my recommendation would be to figure out how to make my SPAC idea happen because if it doesn’t, someone else will.
I can guarantee it.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks