Can Private Assets Reshape Index Investing?
New filings with the Securities and Exchange Commission are requesting permission to launch ETFs that hold both public and private assets.
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Asset managers are literally attempting the impossible in 2025.
The likes of State Street, Apollo and Invesco are all racing to package private assets into indexed products in a move that would open up the strategies to retail investors. BlackRock’s Larry Fink said he wants to “index the private markets” and made it rain this year, announcing three major multi-billion-dollar deals. There are now filings with the Securities and Exchange Commission that are requesting permission to launch new ETFs that hold both public and private assets.
The catch? They’re not allowed under current SEC rules.
Closed for Private Party
Private placements, of course, don’t trade on traditional markets and can include lucrative, and sometimes speculative, strategies like investments in home lending, real estate, private equity, or infrastructure. The filings could become the first major step toward opening up alternative assets to the masses, and would likely revolutionize index investing if approved.
The rub is that the SEC imposes a 15% limit on funds holding illiquid assets. Such investments are generally defined by the agency as anything that requires a week or more to sell without adjusting the price. One of the reasons — and a major cause for concern — is that ETFs trade daily, but private assets are generally marked quarterly or even annually. That can make it tricky to put a price on the underlying assets.
Issuers may get around the rule by using so-called synthetic exposure, according to Bloomberg, which would allow the funds to hold swaps written against a private equity portfolio. The products could also use liquid alternatives that take advantage of complicated strategies, like short selling, to match the performance of the underlying private investments.
Private Parking. If issuers can find a fix, advisors should be eager to jump on board. Cerulli Associates predicts that advisors will eventually use ETFs to access alternative investment products more in the coming years.
- Cerulli’s findings show that 30% of advisors currently report unmet demand for alternative ETF products.
- Researchers concluded that advisors will eventually use ETFs to access a wider range of alternatives, including private credit funds that have yet to be approved by the SEC.
