Goldman’s New Fund Designed for PE Returns, Sans the PE

Microsoft. Eli Lilly. Palantir. No one would mistake those stocks for private equity, but they’re the top holdings of a new Goldman Sachs Asset Management ETF designed to mimic PE returns.

The fund’s name is eye-catching for its reference to that: It’s the Goldman Sachs MSCI World Private Equity Return Tracker (GTPE). But make no mistake, it holds no private equity, and that’s a detail that the prospectus makes clear in bold capital letters. Instead, it tracks an index that “seeks to approximate the returns of private equity investments by replicating region, sector and style exposures through publicly listed equities,” according to the document.

The lack of actual PE is very much the point. For Goldman’s institutional investor clients, who already have access to that category, the ETF provides a way to adjust asset-class exposure in portfolios while providing liquidity and transparency, said Brendan McCarthy, global head of ETF distribution at Goldman Sachs Asset Management. And for retail investors, it’s a sort of bridge to the forbidden world of PE, or at least the returns it can offer. “This is not private equity,” McCarthy said. “This is private equity replication.”

Private Conversation

Amid the absolute crush of new ETFs on the market, there are some novel strategies that market themselves on mimicry. For example, there are a few that strive to approximate the strategies of renowned investors like Warren Buffett. And others even seek to trade like members of Congress. The Goldman GTPE ETF, of course, is different in character, even if it is a variation on a wider theme. The fund is passive, but it tracks an index that actively changes, and both “are designed to capture the characteristics of buyouts and venture capital,” said Oliver Bunn, who leads the quantitative investment strategies team that manages the ETF. In effect, it looks like where public markets would be if they caught up to PE trends years sooner than they historically have, he said.

Some details about the ETF:

• It is diversified across companies, with 1,550 long holdings (as well as about 500 shorts) and the top 10 representing about 19% of the portfolio. Over half the holdings are US-based, with the next-closest regions being the UK and Canada, each at less than 5%. 
• It’s exposed most to information technology (23%), followed by health care (13%) and industrials (13%).
• It launched Oct. 21, has net fees of 0.50% and total assets of $20 million.

Looking Over Your Shoulder: The index and ETF reflect a look into about 85,000 portfolio companies’ ledgers, such as where they invest and in what industries, McCarthy said. “All of that we can replicate in public equities,” he said. “This allows MSCI to create the characteristics of private equity returns.”