How to Invest in Private Equity With Little Money

Private equity involves direct investments in private companies, characterized by long investment horizons and illiquidity. These opportunities require substantial capital, often millions, and are typically reserved for institutional investors or “accredited investor” individuals. An accredited investor, defined by the SEC, generally includes individuals with a net worth over $1 million (excluding primary residence) or an income exceeding $200,000 annually ($300,000 for married couples) in the two most recent years. This structure has limited access for most individual investors. This article explores avenues enabling individuals to gain private equity-like investment exposure with smaller capital.

Publicly Traded Investment Vehicles

Individuals can gain private equity exposure through publicly traded instruments. Business Development Companies (BDCs) invest in small and mid-sized private companies. They primarily lend to and invest in developing businesses, often providing debt or equity stakes. BDCs are regulated investment companies (RICs) under the Investment Company Act of 1940, requiring them to distribute at least 90% of their taxable income to shareholders annually to avoid corporate income tax.

BDCs are traded on public exchanges, making them accessible through standard brokerage accounts, with minimum investments as low as a single share ($10-$30). This public listing provides daily liquidity, a significant advantage over direct private equity investments. Their structure allows income from loan portfolios to pass through as dividends, offering attractive yields. Investors should review BDC expense ratios, which can range from 1% to 3% annually, covering management and operating costs.

Investing in shares of publicly traded private equity firms is another indirect approach. Companies like Blackstone, KKR, and Apollo Global Management list on major stock exchanges. Purchasing shares provides exposure to their business performance, including management fees from private funds and returns on balance sheet investments. This method offers liquidity and transparency, as these firms are subject to public reporting requirements.

Investing in these firms offers a diversified stake in the private equity industry, not a direct investment in their underlying private portfolio companies. Instead, it invests in the asset management business. Minimum investments are simply the share price, making them accessible to retail investors. Expense ratios are embedded within their operational costs, reflected in their stock price and profitability.

Exchange-Traded Funds (ETFs) and mutual funds that focus on private equity offer diversified exposure. These funds typically invest in a basket of BDCs, publicly traded private equity firms, or companies with private equity characteristics. They offer instant diversification across multiple private equity-related holdings, reducing single-company risk. Professional management selects and oversees underlying investments.

These funds are accessible through standard brokerage accounts, with minimum investments from $0 to a few thousand dollars, depending on the fund. They offer daily liquidity, allowing daily buying or selling of shares. Expense ratios for these funds can vary, generally falling between 0.50% and 1.50% annually, covering management and administration costs.

Private Investment Platforms

Online platforms have emerged, democratizing access to private investment opportunities with significantly lower minimums than traditional private equity funds. Equity crowdfunding platforms enable individuals to invest directly in startups and early-stage private companies. These platforms operate under specific regulatory frameworks designed to protect investors while facilitating capital formation for small businesses.

Regulation Crowdfunding (Reg CF), enacted under the JOBS Act, permits companies to raise up to $5 million within a 12-month period from both accredited and non-accredited investors. Non-accredited investors face specific investment limits: if their annual income or net worth is less than $124,000, they can invest the greater of $2,500 or 5% of the lesser of their annual income or net worth. If both their annual income and net worth are $124,000 or more, the limit is 10% of the lesser of their annual income or net worth, up to a maximum of $124,000. Investments on these platforms typically start as low as $100 to $500 per offering.

Regulation A+ (Reg A+) allows companies to raise up to $75 million in a 12-month period from both accredited and non-accredited investors, non-accredited investors limited to 10% of their annual income or net worth. Regulations require certain disclosures, less extensive than for publicly traded companies. Investors can browse opportunities, review company profiles and financial information, and commit capital electronically.

Managed investment platforms represent another category, pooling capital from multiple investors to access private companies. These platforms often differ from direct crowdfunding by offering curated deals or managed portfolios, sometimes including venture capital or growth equity opportunities that would otherwise be inaccessible to individual investors. They may employ a fund structure that then invests in multiple private companies, providing a level of diversification.

Minimum investments on managed platforms can vary widely, from a few thousand dollars to tens of thousands, still considerably lower than traditional private equity funds. These platforms often charge management fees, which can range from 0.5% to 2% of assets under management, and may also include performance fees (carried interest) if the investments achieve certain returns. While these platforms facilitate access, investments made through them carry higher risks and are generally illiquid, meaning it can be difficult to sell shares quickly.

Specialized Funds for Retail Investors

Newer fund structures have emerged to bridge the gap between the illiquidity of private assets and the liquidity needs of retail investors, offering access to private equity-like strategies. Interval funds and tender offer funds are non-exchange traded closed-end funds that invest in illiquid assets, such as private equity, private credit, or real estate. Unlike traditional open-end mutual funds, they do not offer daily redemptions.

Instead, interval funds are required to offer to repurchase a certain percentage of their outstanding shares (typically 5% to 25%) at net asset value (NAV) at predetermined intervals, such as quarterly or semi-annually. Shareholders must submit a request during a specified window, and if the total requests exceed the fund’s repurchase offer, requests are typically pro-rated. Tender offer funds operate similarly but offer repurchases on a less regular basis or at the discretion of the fund’s board. These funds provide limited, periodic liquidity while enabling investment in less liquid asset classes.

The minimum investment for interval funds can range from $2,500 to $50,000, making them more accessible than direct private equity funds. Expense ratios for interval funds are generally higher than traditional mutual funds or ETFs, often ranging from 1.5% to 3.0% annually, reflecting the costs associated with managing illiquid assets and their unique operational structure. Investors acquire shares through financial advisors or brokerage platforms, and while they offer some liquidity, it is not guaranteed and can be subject to pro-rata limitations.

Feeder funds, often structured as “funds of funds,” represent another way for retail investors to gain exposure to traditional private equity funds. These structures pool capital from numerous individual investors and then invest that aggregated capital into one or more underlying private equity funds. This approach allows smaller investors to indirectly access established private equity managers and their diversified portfolios that would otherwise require multi-million dollar commitments.

Feeder funds may have higher minimums than publicly traded options or crowdfunding platforms, but they lower the barrier to entry compared to direct private equity fund investment. Minimums can range from $25,000 to $250,000, depending on the offering. These funds often have a layered fee structure: investors pay fees to the feeder fund manager (e.g., 0.5% to 1.0% annually) in addition to the underlying private equity fund’s management fees (typically 1.5% to 2.0% annually) and carried interest (e.g., 20% of profits). This multi-layered fee structure can impact overall returns, but diversification and access to top-tier private equity managers can be appealing.