Third Wire Launches Novel Private Markets 506(c) FundThird Wire Launches Novel Private Markets 506(c) Fund
The fund is built off the newly created Morningstar PitchBook Buyout Replication Index.
There’s been a mad dash among asset managers to expand access to private markets. For the most part, managers have opted for traditional drawdown vehicles or newer evergreen funds. But Third Wire Asset Management entered the fray with a new approach, launching a 506(c) fund built from the newly launched Morningstar PitchBook Buyout Replication Index.
The fund, Third Wire / Morningstar PitchBook US Buyout Replication Index Fund (USBRIF), tracks publicly traded small-cap and mid-cap stocks that resemble companies in private equity buyout funds. For example, it will target the same industries private equity funds favor.
The fund will have a $1 million minimum investment (although it will also be open to feeder funds) and be open to funds, institutions, and verified accredited investors. Because it will be based on equities, it will provide daily valuations and offer monthly subscription and redemption windows. It will feature a 1.5% management fee, which is roughly consistent with other private equity fund structures, however, unlike drawdown and evergreen funds, it will not carry a 20% performance fee.
“When I first saw PitchBook’s analyst note on buyout replication, I saw an opportunity for investors,” Third Wire CEO Daniel Harms said in a statement. “For too long, private equity has lacked a true benchmark, leaving a significant gap in the market. PitchBook’s research not only addressed this gap but also reinforced something else I’ve long believed—there had to be a better, cleaner, and cheaper way to access private equity-like returns.”
Morningstar officially launched the new index today after a brief preview late last week.
“Since the inception of the buyout strategy in the 1980s, private equity managers have consistently applied a core playbook: targeting underperforming companies that generate strong free cash flow,” according to Morningstar’s release. “However, the industry has struggled with establishing a representative benchmark, as traditional equity indexes fail to capture its distinct approach to security selection, sector tilts, and use of leverage. Infrequent valuations of private equity portfolios further smooth volatility and obscure true risk.”
The index employs a systematic approach, “combining top-down industry exposure aligned with the U.S. buyout market and bottom-up company selection using dynamic public market data to identify public businesses with established cash flows.”
It is underpinned by PitchBook’s data on buyout funds and transactions and “uses machine learning for constituent selection.” Specifically, it will use AI to help identify public companies with take-private characteristics such as strong free cash flows and stable margins.
"Our new index aims to replicate returns from private equity buyout funds with the transparency and liquidity of the public markets,” Morningstar Indexes Head of Innovation Sanjay Arya said in a statement. “We are excited to partner with Third Wire as they use the index to deliver an innovative alternative to traditional private equity offerings to their clients.”
"Private equity firms customarily attribute their performance to operational alpha, but our research found that for many private equity funds, leverage, valuation shifts, and sector selection are actually the primary performance drivers,” Andrew Akers, lead quantitative research analyst, PitchBook, added in a statement. “The Morningstar PitchBook Buyout Replication Index was created to capture these factors systematically and provide a much-needed and realistic benchmark for the private equity industry. As the private markets continue to grow in prominence and accessibility, we’ll continue building a suite of tools to help our clients understand GP strategies and performance analytics."
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