Global private equity stalwart Pomona Capital has become the latest firm to try and push the alternative investing strategy to the retail-investor level with a registered fund launched this week.
The Pomona Investment Fund, which starts with $50 million in seed capital and is being distributed by Voya Financial Inc., will follow the same model Pomona has been using since 1994, as it has raised more than $8 billion.
The fund, which is limited to accredited investors but requires just a $25,000 minimum initial investment, will target the secondary PE market, meaning it will buy limited partnership stakes from other investors looking for liquidity ahead of a fund's 10-year lock-up period.
“Our strategy is a value approach to private equity,” said Michael Granoff, Pomona Capital chief executive.
Unlike
traditional private equity funds that involve large investment commitments and 10-year lock-ups as the pool of assets is invested in a portfolio of private companies, the Pomona model builds a portfolio of existing PE limited partnerships that are usually halfway to maturity.
Mr. Granoff explained that instead of just committing money to a blind pool of assets that will be invested over a number of years, he is building a portfolio of actual private equity investments that can be evaluated and ideally purchased at a discount because of an investor's desire to cash out early.
“We are buying positions that are already four or five years old, and they are already 70% to 80% funded,” he said.
Pomona is the latest traditional private-equity player to launch a registered product aimed at smaller investors, and the trend is likely to continue, according to Richard Pfister, chief executive and president of AlphaCore Capital.
“There is definitely a push by these larger firms to get private equity into the hands of smaller investors,” he said. “The good players are trying to diversify their businesses, but it's good to see some of these blue-chip names becoming available to retail investors.”
Other private equity products from traditional PE firms that are aimed at individual investors include CPG Carlyle Private Equity Fund from The Carlyle Group, Partners Group Fund from Partners Group, and Altegris KKR Commitments Fund from Altegris.
Mr. Pfister said that, unlike investments in a private equity fund, the registered products are essentially funds of funds, which mean
an added layer of fees. In the case of Pomona that adds up to 1.65%, in addition to the management and performance fees attached to the investments in the portfolio.
“You do have a fee increase with these products, but overall I think it's a good thing to see them created,” he said. “You need to understand what they're doing and you need an expert to help you figure out which ones are good.”
Mr. Granoff said he factors in fees whenever investments are added to a portfolio, and added that over the past 10 years, global private equity funds have an annualized 14% return, six percentage points better than the 8% annual advance in the S&P 500 Index.
