Private investment firm files to launch its first ETFs

A private investment firm plans to launch two exchange traded funds focused on the relatively untapped private equity and commercial real estate markets, a regulatory filing shows.

White Wolf Capital Advisors on Monday filed to launch the WhiteWolf Publicly Listed Private Equity and WhiteWolf Commercial Real Estate Finance Income ETFs, the company has disclosed.

The ETFs would be the first for the subsidiary of White Wolf Capital Group, which has focused on private investments since its founding in late 2011.

The Publicly Listed Private Equity ETF will primarily invest in publicly listed private equity companies, including asset managers, business development companies, direct lenders and sponsors, the filing says.

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When selecting investments, White Wolf will evaluate factors, including the company’s credit performance and risk level, potential changes in the company’s earnings and dividend level, and how changes in interest rates could affect the company, the filing states.

Because private equity exposures are not traded on US exchanges, ETFs can only provide exposure to the equity of the managers themselves or listed exposures, such as through business development companies, said Daniil Shapiro, director of product development at Cerulli Associates.

“There is a liquidity mismatch between private equity and ETFs,” said Bryan Armour, director of passive strategies research for North America at Morningstar. “Private equity investors typically can’t withdraw their investment for several years, which could prevent an ETF with intraday trading and daily cash flows from investing in them.”

Asset managers including Vanguard have in recent years bolstered their private equity offerings, but not through the ETF wrapper, he said.

Vanguard launched its first private-equity fund in 2020 and a year later disclosed plans to offer private equity to clients of its hybrid robo, at the time called Personal Advisor Services.

White Wolf’s forthcoming private equity ETF will have an expense ratio of 682 basis points, the filing notes.

That expense ratio will include a 612-bp acquired fund fee, the prospectus shows.

The ETF can purchase listed exposures, such as traded business development companies (BDCs) of private capital managers, which adds to acquired fund fees, Shapiro said.

BDCs may come with high management fees and performance fees, and typically carry a fee structure that is more similar to that of a hedge fund than an ETF, Armour said.

For example, the $723mn VanEck BDC Income ETF charged 1,117 bps in total annual fund expenses last year, including 1,075 bps in acquired fund fees and expenses, he said.

“Such acquired fees can certainly be a detractor to fee-sensitive ETF investors, but the manager may be able to demonstrate value add via their selection of such exposures,” Shapiro said.

There are only two private equity-focused ETFs, he said: the $202mn Invesco Global Listed Private Equity and the $8mn ProShares Global Listed Private Equity ETFs.

Investors piled $23mn into the Invesco offering during the year ended September 30 and pulled $4mn from the ProShares fund, according to data from Morningstar Direct.

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The Commercial Real Estate Finance Income ETF will primarily invest in publicly listed commercial real estate finance companies, including commercial mortgage real estate investment trusts, commercial equity Reits and operating companies that are primarily engaged in commercial real estate finance, the filing says.

The ETF’s expense ratio will be 70 bps, the filing notes.

Both ETFs will be actively managed, according to the filing.

Although private equity and commercial real estate are niche areas for ETFs, more investors may be looking to alternative strategies for their diversification and return potential, particularly in an active ETF wrapper, said Roxanna Islam, head of sector and industry research at VettaFi.

But Armour said buying these ETFs shared little in common with buying into a private equity fund. “Using a gold ETF analogy, the White Wolf Capital ETFs are more akin to buying a gold miners ETF than a gold ETF,” he said. “The risks won’t be the same as a private equity fund, although they will be somewhat related.”

White Wolf Capital Advisors had $570mn in assets under management as of December 31, a regulatory filing shows.

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