Private Equity No Longer a Private Club

Jaron Nunez, who runs Avalon Home Mortgage in Newport Beach, Calif., has tucked away 3% of his retirement portfolio into LPEAX. He likes the mutual fund because his risk tolerance is low. If his investment drops 8% to 12%, he'll likely re-evaluate his position, he says. "I'm knocking on wood."

For a more liquid private-equity investment vehicle, the (PSP)PowerShares Listed Private Equity Portfolio tracks the Red Rocks Listed Private Equity index, a composite of more than 30 publicly traded companies tied to private equity.

PowerShares CEO Bruce Bonds says, "By and large, [Red Rocks] is based on the concept of listed private equity becoming a greater category in the future." Its shares are traded on the American Stock Exchange.

The Pure Plays

In 2007, a few private-equity firms IPO'd on the New York Stock Exchange, among them Blackstone Group(BX) and Fortress(FIG). However, experts say risk-averse investors should beware.

Although these firms must disclose their financials with the SEC, they still lack a significant degree of transparency. "[Blackstone and Fortress] are still buying companies that are not public, and they don't have to tell you much about them," says Steve Kaplan, a professor of finance and entrepreneurship at the University of Chicago.

Legislators are also pushing to raise the tax rate on investment partnerships from 15% to 35%. The move may affect earnings and, ultimately, a private-equity firm's stock. Kaplan recommends "being cautious rather than aggressive."

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