Industry Insights From Morningstar® Indexes Where Public Meets Private: Accessing Private Markets Through Listed Equities Dan Lefkovitz Executive Summary Strategist, markets have changed profoundly in recent decades. Think back to the IPO frenzy of the late Morningstar Indexes 1990s, when companies listed their shares with little more than a dot-com suffix and a business Rahul Handoo model built on “eyeballs.” Twenty years later, companies worth billions avoid going public, while Senior Quantitative Analyst, firms like Blackstone, Apollo, and3 i have taken scores of companies into private hands. Twice as New Product Development many U.S. companies are now backed by than are publicly listed. Daniel Cook, CFA Senior Analysis Manager, As markets have evolved, so too has investor behavior. Pension funds, sovereign wealth funds, PitchBook and other asset owners are raising their allocations to private assets. Several hundred U.S. mutual Krishnan V.R., CFA funds even own small stakes in private companies.1 Meanwhile, managers long associated with Quantitative Research public markets—names like Vanguard, BlackRock, Amundi, Fidelity, and T. Rowe Price—are launch- Manager, New Product Development ing investment vehicles dedicated to private companies, while the SEC chairman talks about making private markets more accessible.

1 “Unicorn Hunting: Large-Cap Funds That Dabble in Private Companies.” Morningstar The convergence between public- and private-market investing only shows signs of accelerating, Manager Research. May 2018. Katie Reichart. according to PitchBook, a Morningstar company specializing in private-market data and research. A PitchBook survey of institutional investors showed that 66% plan to increase their allocations to private assets. Expanding the investment opportunity set holds obvious appeal. So too do eye- popping returns for the top-performing private equity and funds.

Private-market investing has its challenges, though. Direct investments in private companies and in private equity funds require large outlays, long lockup periods, and concentrated exposure to illiquid, often leveraged investments. Private equity fund fees are notoriously high.

Publicly traded vehicles that invest in privately held businesses are an attractive gateway to private markets. They are liquid, regulated, diversified, and easily investable. They help investors avoid post-commitment declines typical of private equity investments. Listed private equity provides an access point to the asset class for retail investors as well as institutions.

As private markets grow, investors need to expand their toolkits. The Morningstar PitchBook Listed Private Equity Indexes highlight publicly traded companies with significant private equity exposure. The indexes allow investors to better reflect new market dynamics in their portfolios.

2 Where Public Meets Private: Accessing Private Markets Through Listed Equities Private Markets Rising The growth of private markets is one of the key forces shaping today’s investment landscape. Many young companies are choosing to remain private or delaying bringing their shares to market far longer than in the past, all thanks to massive cash infusions from investors. Prominent examples include Ant Financial (the former Alipay), Airbnb, Didi Chuxing, and Stripe, all of which remained private as of this writing. U.S. ride-hailing services Uber and Lyft, as well as Cloudera, Pinterest, Snapchat, and Dropbox, all brought their shares to market in 2017-19 but reached significant scale before their IPOs. Private companies with valuations exceeding $1 billion may be called “unicorns,” but they’re no longer as rare as the term implies—PitchBook counted no fewer than 375 as of December 2019.

Meanwhile, many sizable public companies have been taken private in recent years. Alliance Boots, Equity Office Properties, Burger King, Barnes and Noble, Heinz, Panera Bread, Hilton Worldwide, , and Kinder Morgan are all examples of public companies that were delisted (though some have relisted). The players taking them private include names like Blackstone, , 3G Capital, and . These private equity investors are professionally managed partner- ships that acquire or build stakes, typically in more mature companies. Targeted companies often take on significant amounts of .

By sheer numbers alone, U.S. companies backed by private equity eclipsed publicly listed ones more than a decade ago.

Exhibit 1. Public vs. Private Equity-Backed Companies in the U.S.

U.S. Private Equity-acked Companies U.S. Public Companies

12,000

10,000

8,000

6,000

4,000

2,000

0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Source: PitchBook and World Bank

The trend is not confined to the U.S. market. The number of companies listed on the main United Kingdom exchanges, for example, has declined by more than 70% since the mid-1960s. This can be 2 “What Is the Point of the Equity Market?” attributed to both a decrease in IPOs and an increase in companies being taken private.2 November 2019. Schroders.

By value, public markets are still multiples larger than private ones. But private-market investing is growing faster. Between 2008 and 2019, PE and VC investors deployed $11.6 trillion into companies globally, according to PitchBook data. In 2019, private equity funds raised more than $300 billion, an all-time high.

3 Where Public Meets Private: Accessing Private Markets Through Listed Equities Exhibit 2. Global PE & VC deal value ($B)

Private Equity unds Value Venture Capital unds Value

$2,000

1,600

1,200

800

400

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: PitchBook

PitchBook Public markets remain key to unlocking private-company value. Between 2009 and 2018, PitchBook counted 1,068 initial public offerings of venture-capital-backed firms in the U.S. and Europe. PitchBook is a financial data and software company founded in 2007 with a focus on Meanwhile, 1,005 companies backed by private equity went public. To be sure, there have been private capital markets. Morningstar acquired PitchBook in December 2016. some high-profile duds, like Uber and WeWork. But there are successful counterexamples, such as cloud-based platform Smartsheet (a unicorn) and Arvinas, a biopharmaceutical company. As of 2019, the PitchBook platform captured data on 1.9 million companies, 1.1 million deals, and 46,000 funds (private equity, venture capital, and so on). PitchBook’s data Prominent private equity “exits” through IPOs have included Glencore International, which listed teams collect, calculate, and verify key figures in 2011 on the London Exchange, and HCA, also in 2011. PitchBook tracks several companies to build in-depth data sets with information not found elsewhere. More than 650,000 that have IPO’ed twice with the involvement of private equity. The list includes Townsquare web crawlers scan the Internet—capturing relevant financial information from news Media and Jack in the Box in the U.S., Debenhams and DFS Furniture in the U.K., Samsonite in Hong articles, regulatory filings, websites, press Kong, Parques Reunidos in Spain, Legrand in France, and APAC Realty in Singapore. Clearly, releases, and more. PitchBook data is used for many purposes, including sourcing the public-private thoroughfare accommodates two-way traffic. investments, fundraising, and deal execution.

PitchBook has also observed that private equity holding times are lengthening. Thanks to the prolonged bull market for equities, the general partners who run private equity funds are retaining ownership of portfolio companies, even extending fund lives.3 A robust secondary market for partnership stakes has blossomed, as well.

Drivers of Private Market Growth A variety of forces have conspired to shift the balance of power between public and private markets. Low interest rates since the financial crisis have eased the raising of private capital, reduced the cost

3 Cox, D., Fernyhough, W., Stephen-George, D., of corporate borrowing, and pushed institutional investors out of low-yielding bonds. Costs of listing and Carmean, Z., 2020 Private Equity Outlook. PitchBook. Dec 13, 2019. are frequently cited as prohibitive. These include fees, listing fees, and ongoing reporting and compliance expenses. The OECD Business and Finance Outlook of 2017 estimated 4 What is the point of the equity market?” 4 November 2019. Schroders. median IPO costs as between 9% and 11% of the amount raised in the U.S. market.

4 Where Public Meets Private: Accessing Private Markets Through Listed Equities U.S. government policy has also boosted private markets at the expense of public ones. A September 2019 study by the National Bureau of Economic Research cited a number of regulatory developments that “played a significant role in changing the going-public versus staying-private trade off.” One was the National Securities Markets Improvement Act of 1996, which allowed for an increased number 5 5 Ewens, Michael and Farre-Mensa, Joan, The of investors in private funds. Another was the 2012 Jobs Act, which expanded the number of private Deregulation of the Private Equity Markets and the Decline in IPOs (September 2019). NBER shareholders a company is allowed before being required to publicize financial results. Working Paper No. w26317 The simple fact is that private companies can operate out of the limelight. They are not obliged to reveal details, including financial results or business strategy, that could benefit competitors. They face a lower regulatory burden and fewer reporting requirements than their public counterparts.

Public companies today are under enormous scrutiny. They face pressure to deliver quarterly earnings and can suffer painful consequences for falling short, including share price declines and interference from activist investors. Private companies, by contrast, aren’t beholden to the short-term interests of public shareholders. They can focus on long-term strategy and value creation.

Case Study: WestJet Airlines A Canadian airline and travel company, WestJet was taken private in 2019 by -based private equity company Onex in a deal worth CAD 50 billion. WestJet shareholders received CAD 31 per share and the company was delisted from the Toronto Stock Exchange. WestJet services over 100 destinations as a budget carrier and generated CAD 4.7 billion in revenue in 2018. But WestJet is pivoting its strategy. It has purchased wide-body jets and plans to serve more-affluent travelers, while running an ultra-low-cost carrier branded Swoop. Morningstar Equity Research wrote of the transaction:

“We think private markets are a great landing spot for WestJet’s assets, since public markets are uneasy about commodity volatility, a stalling upcycle, and management’s operational

6 “WestJet Glides into Private Markets in CAD transformation. The private market is able to weather these near-term headwinds and give WestJet 5 Billion Transaction With ; space to execute on a myriad of initiatives geared toward attracting premium travelers and Raising Fair Value.” Morningstar Equity 6 Research. May 2019. Danny Goode. fleet optimization.”

Private equity owners often take an active approach, sitting on the board of portfolio companies and getting involved in day-to-day operations to drive value, even changing management if need be. An increasingly popular strategy is called “Buy and Build,” also known as “Add-On Deals,” wherein private equity uses an acquired company as a platform for further related acquisitions. Another trend has seen private equity players carving out pieces of larger companies and taking them private. The largest U.S. of 2019 was the $13.2 billion Clarios carve-out from Johnson Controls, while in Europe, data provider Refinitiv was carved out of Thomson Reuters by private equity, then sold to London Stock Exchange. Private equity funds typically make significant use of leverage, issuing debt or restructuring existing debt to enhance returns.

5 Where Public Meets Private: Accessing Private Markets Through Listed Equities Comparing the performance of private equity to public equity is a difficult task. Private funds are not subject to the same reporting requirements as mutual funds regulated by the Securities and Exchange Commission. Still, available data paints a positive picture for the performance of private equity. One example is a 2015 paper published by professors Robert Harris, Tim Jenkinson, and Steven Kaplan, which studied 1,800 North American buyout and venture capital funds. They found that the average buyout fund returns for all vintage years but one before 2006 have exceeded those 7 Harris., Robert, Jenkinson, Tim, and Kaplan, from public markets, while the performance of venture funds is more mixed.7 Steven. “How Do Private Equity Investments Perform Compared to Public Equity?” Darden Business School Working Paper No. 2597259. An Altered Opportunity Set June 15, 2015. For investors, there are profound consequences to the rise of private markets. The 2018 CFA Institute 8 Rosov, Sviatoslav, “Capital Formation: The Evolving Role of Public and Private Markets,” study Capital Formation: The Evolving Role of Public and Private Markets links the rise of private CFA Institute. 2018. markets to a narrowing opportunity set for public-market investors. “[P]ublic equity markets and the stock market indices that represent them increasingly may be exposed to more mature businesses and less (directly) exposed to smaller, newer companies, and to sectors with higher growth potential.”8

To access private markets, several hundred U.S. mutual funds have built stakes in private firms. This practice has raised some alarm bells, as the investments seem at odds with mutual funds’ commit- ment to daily liquidity and daily pricing. According to “Unicorn Hunting,” a report examining mutual fund ownership of private companies, Morningstar Manager Research analyst Katie Reichart found that private-firm equity investment—mostlyVC -backed companies—totaled just 0.15% of U.S. large- cap equity universe’s $5.1 trillion in assets as of December 2017. Only nine funds held private-firm stakes greater than 5% of assets.

Institutional investors, for their part, have become active players in the private markets. Willis Towers Watson predicts that global asset owners will raise their allocations beyond the 14% level estimated today. The Yale University Endowment, considered a pioneer, allocates more than 30% of its assets to private equity. Some large sovereign wealth funds even team up with private equity funds to take companies private. Canada’s Brookfield Asset Management and Singaporean GIC teamed up to buy out U.S. freight railroad owners Genesee & Wyoming. With so much value in the private markets, investors seek access to the full spectrum of invest­ment opportunities.

The dramatic expansion of private markets has led to calls for broadened accessibility. The aforemen- tioned CFA Institute study on capital formation concludes:

“There are benefits to both public and private capital markets, and so the ability to allocate to both is important…Having increasingly large sections of capital markets being out-of-bounds for pension sav- ers is unlikely to be politically viable or even desirable in the long term… It is not credible to allow an entire generation of retail investors to be left with only diversified public market exposure to generate retirement returns, while institutional investors crowd into innovative business models that offer poten-

7 Rosov, Sviatoslav, “Capital Formation: The tially higher returns.” 9 Evolving Role of Public and Private Markets,” CFA Institute. 2018.

6 Where Public Meets Private: Accessing Private Markets Through Listed Equities On this logic, steps are being taken from both the top down and bottom up to open up private market investing. SEC Chairman Jay Clayton floated the concept of bringing private equity funds to retirement savers at the retail level. While the notion would require fundamental changes to disclosure and regulation, the fact that it is on the table reflects the growing importance of private assets. Meanwhile, Vanguard announced a private equity fund for its institutional clients with the intention of eventually opening it up more broadly.

Private-Market Investment Challenges gRegulation requires investors to be “qualified” or “accredited,” so household participation in private markets is limited to the high-net-worth segment. Pensions, endowments, foundations, and sover- eign wealth funds increasingly invest in private equity funds, which require large capital outlays and a long lockup period—often 10 years. Private equity fund lifespans have extended, and new funds with longer durations have launched. gDiversification is another challenge when it comes to private equity investing. Private equity and venture capital funds focus on different stages of investment—early stage, midstage, and late stage. There’s also a range of capital structures employed, including equity, debt, and mezzanine financing. Private equity funds can target a variety of industries. PitchBook categorizes companies in its venture capital, private equity, and M&A database into more than 50 “verticals.” These include such burgeoning areas as adtech, augmented reality, and oncology. Meanwhile, roughly 40 industry groupings include more “Old Economy” segments, such as metals, minerals, and mining, forestry, and containers and packaging. gThe “J Curve” effect is yet another pitfall faced by private equity investors. This refers to a phenomenon whereby an initial investment in a private equity fund stagnates for two to three years before (in an ideal scenario) appreciating. It can take time for general partners to deploy capital and for investments to pay off. Meanwhile, hefty management fees eat into principal. Below is an illustration of how the J-Curve effect might play out in practice.

Exhibit 3. The “J Curve” Effect is a Common Challenge Faced by Private Equity Fund Investors

Management ee Capital Calls Distributions Carry Net Gain

80 150

60 Yr. 5 100 40

20 Yr. 2 50

0 0 -20 Yr. 1 Yr. 3 Yr. 4 Yr. 6 Yr. 7 Yr. 8 Yr. 9 Yr. 10 -50 -40

-60 -100

Source: PitchBook—For illustrative purposes only.

7 Where Public Meets Private: Accessing Private Markets Through Listed Equities gFinally, there’s the issue of fees. The classic private equity fund fee structure is 2% of committed capital, plus a performance fee on investment profits of20% —commonly known as “2 and 20.” Fees have attracted scrutiny from policymakers and are targeted by the Stop Wall Street Looting Act introduced in July 2019 by Sen. Elizabeth Warren and others. According to a 2019 survey, 73% of limited partners invested in private equity funds agreed that “private equity fees are difficult

10 Bippart, Graham. “Fees Continue to Be to justify internally,” up from 63% in 2018.10 It is not just the level of fees and preferential U.S. tax a Sore Point,” Private Equity International. 11 December 2019. treatment that have attracted ire, but the issue of fee transparency.

Listed Private Equity: A Gateway to Private Markets Publicly traded vehicles that invest in privately held businesses are an attractive gateway to private markets. Listed private equity allows investors to access private equity opportunities while circumventing obstacles such as high investment minimums, regulatory constraints, and lockup periods. On the last point, even the most patient of asset owners like ready access to their capital. Yngve Slyngstad, of the Norwegian Government , complained of PE’s “duration of implementation” being “so long.”

Listed private equity can take different forms, including the shares of private-equity-focused investment managers and closed-end funds. The first route was opened when Kohlberg Kravis Roberts raised $5 billion in a 2006 initial and Blackstone floated its shares one year later, raising $4 billion. The Carlyle Group went public in 2012. While the share price performance of publicly traded private equity managers is not the same as the performance of the funds they manage, ultimately investment acumen will drive business results. Good returns attract assets. Fees are collected on the basis of both assets and performance.

What about performance? PitchBook compared the returns of flagship funds run by four publicly traded firms—, Blackstone, the Carlyle Group, andKKR —to those managed by four private PE firms with similar flagship fund sizes—, , TPG Capital, and . They found that the flagship funds managed by the public cohort outperformed the private cohort on average. This outperformance was measured by internal rate of return, which considers cash flows from and to investors, and represents net-of-fees performance.

8 Where Public Meets Private: Accessing Private Markets Through Listed Equities Exhibit 4. Publicly-Traded Private Equity Managers Have Produced Superior Fund Returns to Their Private Counterparts

Private Cohort Public Cohort

20%

15.4 15.4 15.7 15 14.6

12.0 11.0 11.0 10 10.2

5

0 3-Year 5-Year 10-Year 15-Year

Source: PitchBook, Flagship buyout funds of selects firms - 1997-2014 Vintage.

But defining the pool of publicly traded private equity managers is not a straightforward task. Complicating matters are companies like Apple and with significant corporate venture arms. Even a company like Blackstone Group is tricky. One of the world’s foremost private equity players with more than 700 investments over the past 15 years, Blackstone has diversified its business. It now describes itself as a “an alternative asset manager” with a focus not just on private equity, but also real estate, , and hedge funds. In fact, private equity now represents a minority of Blackstone’s overall .

Exhibit 5. Blackstone Assets Under Management

Hedge unds $81 il Private Equity 14 $183 il 32

Credit 25 $144 il

29

eal Estate $163 il

Source: Blackstone website, February 2020

9 Where Public Meets Private: Accessing Private Markets Through Listed Equities Another section of the universe is private-equity-focused closed-end funds—mostly investment trusts listed in the U.K. Also exchange-traded companies, they are pools of capital that invest in a portfolio of assets. Some directly own private companies. Others take a funds-of-funds approach, meaning that they invest in private equity funds. As with any closed-end fund, discounts or premiums can open up between share price and net asset value. Discounts became dramatic during the 2008 financial crisis. But closed-end funds can also provide an attractive access route to private company equity. Says Emma Osborne, head of London-listed ICG Enterprise Trust: “Listed private equity funds are effectively giving shareholders access to the same type of investments that

11 “The Rise of Individual Investors: Listed Private are attracting institutional investors.”11 Equity,” Rod James, 8 August 2018. Private Equity International. Introducing the Morningstar PitchBook Listed Private Equity Indexes Morningstar PitchBook Listed Private Equity Indexes highlight publicly traded companies with significant private equity exposure. The indexes focus on developed markets in North America, Europe, and Asia. They provide ease of access to a diversified group of publicly traded companies with private equity exposure and emphasize pure-play private equity firms. The indexes leverage unique data sets from PitchBook for selection and weighting.

An Emphasis on Investability

PitchBook’s Private Fund Database The indexes’ starting universe includes companies listed on developed-markets exchanges, as classified by Morningstar Indexes, that have had more than three active private equity deals during PitchBook classifies private-market focused funds into a number of different buckets: the past 10 years, market capitalizations of more than $100 million, and three-month average g Private equity: Buyout, growth/expansion, daily trading volume greater than $250,000. mezzanine, restructuring/turnaround, and diversifiedPE The indexes select companies whose primary industry is classified by PitchBook as private equity, g Debt: direct lending, bridge financing, dis- tressed debt, credit special situations, including those involved in venture capital, private equity buyout, private equity growth, infrastructure debt, , and real or mezzanine financing. Constituents include direct private equity investors, alternative asset manag- estate debt ers, fund-of-funds, holding companies and closed-end investment vehicles. g Real assets: Real estate, real estate core, real estate core plus, real estate distressed, real estate opportunistic, real estate value added, Weighting Methodology: Purity Score energy, infrastructure, mining, timber Morningstar’s proprietary Private Equity Exposure Weighting Methodology is designed to provide g Venture capital investors with purity of exposure to private markets through listed private equity. It begins g Secondaries with float-adjusted market capitalization, but tilts the constituent weights based based on their

g underlying exposure to private equity.

The methodology applies a Purity Score to ensure that pure-play private equity firms get higher weight in the index. The score is determined by a firm’s percentage of private equity or venture capital investments as a share of the overall investment portfolio. Investments in buildings or real estate are not considered PE or VC.

10 Where Public Meets Private: Accessing Private Markets Through Listed Equities The Purity Score in Practice Portfolio Diversification The methodology includes the following constraints to ensure diversification: Onex is a Toronto-based investment manager whose assets under management as of mid-2019 approached $40 billion in U.S. dollars. Onex’s Purity Score is high because it is gInvestment stage. Constituent weight is constrained by exposure to different investment stages, close to a private equity pure play, with more informed by PitchBook data. This is both a risk-control measure and a way to reflect the state of the than 30 active investments through buyout and leveraged and PE growth deals. market. Aggregate weight devoted to late stage, midstage, and early stage is capped at 80%, Examples include AutoSource, a used-vehicle retailer; , a provider of 20%, and 10%, respectively. medical technology; and WestJet, a Canadian airline and travel company. gSecurity. Individual security weight is capped at 10%. The aggregate weight of securities with Apollo Global Management, by contrast, has a significantly lower Purity Score than Onex. weights greater than 5% is restricted to 40% of overall index weight. This assures that performance Apollo is a well-known private equity player is not overwhelmed by a few constituents. that emerged from the demise of Drexel Burnham Lambert; it owns such companies as Cox Media Group, Caesars Entertainment, and ADT. But like Blackstone, Apollo has gLiquidity. Li­quidity-informed weighting is based on how easily a position can be built or unwound. diversified its business and now describes The calculation is based on a position’s average daily trading volume, number of days to trade, itself as an “alternative asset manager.” Apollo’s $200 billion in assets under manage- percentage of a position’s average daily trading volume in one day, and assets under management. ment are spread across private equity, credit, and real estate. Private equity is a meaningful portion of Apollo’s business, but Exhibit 6. Morningstar PitchBook Listed Private Equity Indexes Construction Process it’s not a pure play to the extent of Onex.

Morningstar Liquidity and PitchBook Eligible Universe Selection Weighting Market Cap Screens Listed Private Equity Indexes

g Companies listed in g Select securities with private g Securities should have g loat market cap weighting developed market echanges equity as primary industry market cap of 100 Mil USD adjusted for purity score with 3 active private equity g Select securities classified as: and 3-month average daily subjected to investment deals during last ten years Venture Capital traded value of 250k USD stage, concentration and PEuyout liquidity constraints PE Growth Mezzanine g Select securities with substatial PE investment

*Primary industry classifcation as per PitchBook

Index Reconstitution/Rebalancing The indexes reconstitute, or resets membership, once per year, in December. Index weight is rebalanced, or brought back to target weight, each quarter.

Morningstar PitchBook Listed Private Equity Indexes: Strong Performers Offering Broad and Unique Exposures 12 12 To produce a historical back-test, current in- From December 2012, the indexes have produced strong returns relative to the broad market. dex constituents were held constant back to 2012. Market capitalization has been adjusted As shown in the simulated returns below, The Morningstar PitchBook Developed Markets for, but purity scores and investment stage Listed Private Equity Index has outperformed its parent, the Morningstar Developed Markets Index, exposure data was back-propagated using November 2019 data. over that period.

11 Where Public Meets Private: Accessing Private Markets Through Listed Equities Exhibit 7. Growth of a $10,000.00 Investment

Morningstar Pitchook Developed Markets Listed Private Equity Inde Morningstar Developed Markets Inde

30,000

25,000

20,000

15,000

10,000 2013 2014 2015 2016 2017 2018 2019

Source: Morningstar Indexes. Data as of Dec. 31, 2019.

The indexes provide exposure to securities that may not be held elsewhere in a portfolio or may be held at a low level of exposure. The private equity investments made by index constituents are diversified across more growth-leaning areas, such as technology and healthcare, as well as across more “Old Economy” value-leaning areas, such as financials and energy. The constituents’ private equity investment breakdown by sector is shown below:

Exhibit 8. Underlying Sector Exposure of Index Constituent Investments

Cyclical

asic Materials 6.0 Consumer Cyclical 9.8 inancial Services 21.9 eal Estate 8.3

Sensitive

Communication Services 1.0 Energy 8.0 Industrials 17.8 Technology 9.8

Defensive

Consumer Defensive 7.0 Healthcare 10.0 Utilities 0.4 Other 0.1

Source: PitchBook data on Private Equity Fund Investments mapped to Morningstar Global Equity Classification by Morningstar Indexes. Data as of December 2019.

Conclusion Publicly traded vehicles that invest in privately held businesses are an attractive gateway to private markets. Listed private equity offers an ideal way for investors to gain access to an asset class that is otherwise outside their reach. The Morningstar PitchBook Listed Private Equity Indexes provides efficient, diversified and liquid exposure to publicly traded companies with significant private equity exposure. Given the growth of private markets and a changing opportunity set, the indexes make a great addition to investors’ toolkit.

12 Where Public Meets Private: Accessing Private Markets Through Listed Equities About Morningstar Indexes combine the science and art of indexing to give investors a clearer view into Morningstar Indexes the world’s financial markets. Our indexes are based on transparent, rules-based methodologies that are thoroughly back-tested and supported by original research. Covering all major asset classes, our indexes originate from the Morningstar Investment Research Ecosystem—our network of accomplished analysts and researchers working to interpret and improve the investment landscape. Clients such as exchange-traded fund providers and other asset management firms work with our team of experts to create distinct, investor-focused products based on our indexes. Morningstar Indexes also serve as a precise benchmarking resource.

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13 Where Public Meets Private: Accessing Private Markets Through Listed Equities