AMONG THE 40

exchange-traded funds that PowerShares Capital Management has registered to launch, perhaps the most intriguing is a private-equity ETF. Expected to debut sometime in October, the

will track the Listed Private Equity Index, a new benchmark of about 30 publicly traded companies that invest in private equity. PowerShares currently has 37 ETFs on the market.

Most investors have long been excluded from reaping the rewards of private-equity deals. The wealthy individuals and deep-pocketed institutions that buy into private-equity funds are often required to put up millions of dollars and keep it invested for years on end. A private-equity ETF should open the door for the Average Joe to get in on the action, even if only in a modest manner.

"Currently there isn't a way for the retail investor to invest in a traditional private-equity fund," says David Snow, U.S. editor of Private Equity International, a New York-based publication. "Most private-equity firms require an investor to be accredited to be involved. That means you need a net worth of at least a million dollars."

All the companies on the Listed Private Equity Index, created by Denver investment advisor Red Rocks Capital Partners, will be publicly traded, which ensures liquidity. Investors in the proposed PowerShares ETF based on the index will be able to get in and out of trades easily because like all ETFs this new one will price throughout the day. Initial investments will also be modest, just the price of a single share. Unlike private-equity funds, which usually don't offer much transparency into their holdings, ETF investors will know what they're buying. As added benefits, valuations will be set by the market and not the private-equity fund's general partners, and proceeds can be reinvested in the ETF, something private-equity funds typically don't allow.

"Private equity has become a household word known even to the masses," says Mark Sunderhuse, co-managing partner of Red Rocks Capital. "People wake up every morning to hear someone has been purchased by another company or spun out by so-and-so. Many large pension funds have significant exposure to private equity, but the masses have not had the opportunity to participate. There are no mutual funds dedicated to it, though some may have a small amount invested in private equity. We are trying to bring a vehicle that addresses a new asset allocation that everyone can access."

Sunderhuse likens the emergence of private equity to that of real-estate investment trusts about 20 years ago. At the time only institutions could access commercial real estate, he says. But now, REITs are considered an asset class in and of themselves. In addition, Sunderhuse says private-equity performance tends not to correlate to the broader stock market, making it a good asset for diversification.

Inclusion in the Listed Private Equity Index requires a publicly traded company to invest the majority of its assets in private companies. Such public companies would include business-development outfits, private-equity funds, venture-capital firms and special-purpose acquisition companies. While the index will hold about 30 companies, Red Rocks says these 30 in turn will have investments in more than 1,000 private businesses. The index will be rebalanced on a quarterly basis, and no single stock may exceed 10% of the index at the time of rebalancing.

The American Stock Exchange expects to start calculating and publishing the Listed Private Equity Index by the end of September, and PowerShares expects to launch the ETF next month. Because the index isn't yet published, Red Rocks can't comment on its initial components. Stocks that seem likely to make the cut include Apollo Investment, KKR Financial, Gladstone Capital and Allied Capital. Most of these companies are affiliated with private-equity firms and make loans to private companies.

"It appears to be basically a fund of private-equity funds that trade on an exchange," says Richard Kang, president and chief investment officer of Meridian Global Investors, a Toronto-based money manager that specializes in ETF-based portfolios. "It would be better to get direct access to private equity, but that gives up liquidity. So, with all the benefits of exchange-traded funds, such as intraday trading and liquidity, this is a good innovation for getting retail investors into the private equity asset class,"

However Kang says before he would invest in such an ETF, he would need the assurance that he can find out what the companies are investing in.

"Because you're not just buying into 'private equity'," says Kang. "You're buying into a particular sector such as biotech or telecommunications. Will it be fully weighted in any particular sector? Because if I'm already exposed to that sector, then I could inadvertently be doubling down."

Though it's unlikely investors will know for sure the identities of the 1,000 or so private businesses that the 30 index components own stakes in, it is likely that the new ETF will provide a tempting destination for some risk capital. After all, it's not often that the little guys can invest side by side with the big guns of the corporate finance world.