How to Access Private Market Investments Through ETFs

For most of modern financial history, investing in private companies meant one of two things: you were a venture capital firm, or you were very rich.

Minimum cheques of £250,000 or more, accreditation requirements, multi-year capital lockups — private equity was not built for ordinary investors. It was built to stay exclusive.

That is starting to change. Asset managers are now constructing vehicles that let retail investors buy listed funds which hold, among other things, shares in private companies. The most prominent recent example is ARK Invest's decision to include OpenAI exposure across several of its ETFs, following OpenAI's $122 billion funding round.

For retail investors in the UK and US, this raises a real question: is this genuine access, or just the appearance of it?

This article explains the mechanics, the regulatory context on both sides of the Atlantic, and the trade-offs you need to understand before acting.

Several forces are converging.

Companies are staying private for longer. OpenAI, SpaceX, and Stripe are worth hundreds of billions of dollars and have not listed. A generation ago, companies of that scale would have IPO'd. Now they can raise vast private capital and delay public listings indefinitely.

That means the most valuable phase of a company's growth — the period that historically produced the largest returns — happens entirely out of reach for public market investors. By the time a company like OpenAI lists, its early investors will already have captured the majority of the upside.

At the same time, retail demand for access to these companies is high. Asset managers have responded with new structures designed to close the gap between illiquid private assets and the listed, liquid markets where most retail investors operate.

The mechanics are less intuitive than they look. An ETF that "includes OpenAI" is not doing what most people assume.

### Special Purpose Vehicles (SPVs)

The most common route. An intermediary — usually the asset manager's venture arm or a third-party bank — creates a pooled investment vehicle that acquires shares in the private company. The ETF then buys units in that vehicle.

The ownership chain looks like this:

You → ETF → SPV → Private Company

This keeps the ETF compliant without requiring direct ownership of restricted private shares.

### Secondary Market Purchases

ETFs can also acquire private shares on secondary markets, typically from early employees, former investors, or other funds looking for liquidity. These transactions are less standardised and the pricing is less transparent than exchange trading.

### Indirect Exposure via Venture or Growth Funds

In some cases, an ETF gains exposure through a stake in a venture fund that itself holds the private company. This adds another layer:

You → ETF → Fund → Private Company

Each layer introduces additional fees, reduced transparency, and a further dilution of your actual exposure to the underlying asset.

In the United States, the governing rule is SEC Rule 22e-4 (the "Liquidity Rule"). Under this rule, standard open-end ETFs — the kind you buy and sell on an exchange daily — are permitted to hold up to 15% of their net assets in illiquid investments. Private company shares fall into this category.

This 15% cap is not arbitrary. It is designed to manage the core tension in this type of fund: if investors want to redeem their ETF shares during a market stress event, the fund must be able to raise cash. Liquid holdings — public equities, bonds — can be sold quickly. Private holdings cannot. The 15% limit is the regulatory safety valve.

This is why, in practice, you tend to see funds allocating a relatively small percentage to any single private company. An ETF might hold 2 to 4% of its portfolio in OpenAI, not 30%.

A separate category of vehicle, the Interval Fund, is permitted to hold far higher concentrations of illiquid assets — in some cases up to 100%. But in exchange, redemption rights are restricted. Investors can typically only sell back a fixed percentage (often 5%) of their shares once per quarter.

UK and European retail investors face additional complexity, because most US-domiciled ETFs are not directly accessible through standard ISAs or SIPPs.

The core issue is UCITS (Undertakings for Collective Investment in Transferable Securities) compliance. Funds marketed to retail investors in the UK and EU must generally comply with UCITS rules, which impose their own strict liquidity requirements.

UCITS funds are required to hold assets that are either:

- Listed on a regulated market, or - Otherwise sufficiently liquid to allow daily redemptions

Private company shares — unlisted, with no continuous price — do not straightforwardly meet this test. As a result, most ETFs that hold meaningful private company exposure are domiciled in the US, distributed to US retail investors, and are not UCITS-compliant.

Practical implications for UK investors:

- You cannot hold most US-domiciled ETFs in an ISA or SIPP due to HMRC's requirement that funds be UCITS-compliant or from approved jurisdictions. - You can typically hold them through a general investment account (GIA) with a brokerage that supports US-listed securities, but without the tax wrapper benefits. - The FCA has also shown limited appetite for approving non-UCITS complex funds for mainstream retail distribution, which means the UK product set remains narrower than the US equivalent.

Some UK-domiciled alternatives do exist. Closed-end investment trusts listed on the London Stock Exchange — such as those managed by Schroders or Baillie Gifford — have long held stakes in private companies and are accessible within ISAs. These are structurally different from ETFs (they have fixed share counts and trade at a premium or discount to NAV), but they are a route worth understanding.

Two newer fund structures are also worth noting, even if they are not yet widely available to individual investors.

Long-Term Asset Funds (LTAFs) are a UK-specific vehicle introduced by the FCA in 2021 (Policy Statement PS21/14), designed explicitly to channel capital into illiquid long-term assets such as private equity, infrastructure, and venture. LTAFs are not listed on an exchange. Redemptions are permitted only at set intervals — typically monthly or quarterly — which aligns the fund's liquidity profile with the underlying assets. Initially restricted to institutional investors and DC pension schemes, the FCA has been gradually widening access. As of 2024, LTAFs can be marketed to a broader range of retail investors, subject to appropriateness assessments. They are not currently ISA-eligible, though SIPP eligibility means they are accessible for pension investors. Watch this space: LTAF is likely to become one of the primary retail routes to private markets in the UK over the next several years.

European Long-Term Investment Funds (ELTIFs) are the EU equivalent, governed by ESMA. The original ELTIF framework imposed a €10,000 minimum investment and significant restrictions on retail distribution. The revised ELTIF 2.0 rules, which took effect in January 2024, removed the minimum investment floor and simplified access requirements, with the explicit aim of broadening retail participation. Post-Brexit, ELTIFs are not automatically available to UK retail investors — distribution into the UK requires separate FCA recognition — but UK residents may encounter them through certain platforms or cross-border fund structures. They are not eligible for UK tax wrappers.

### Access You Would Not Otherwise Have

The simplest and most legitimate benefit. Without this type of vehicle, most retail investors have no route to companies like OpenAI. For investors who understand the structure and its limits, that access has value even in diluted form.

### Liquidity

Direct private investments lock capital up for years. ETFs do not. You can exit your position on any trading day, which changes the risk profile materially.

### Diversification

A fund allocating 3% to OpenAI is not a concentrated bet. The rest of the portfolio is spread across other holdings. This cushions the impact of any single private company's performance — in both directions.

### No Operational Complexity

No capital calls, no K-1 tax forms, no legal review of subscription documents. The ETF handles all of that. For retail investors without the time or expertise to navigate private fund administration, that simplicity is genuinely valuable.

### Liquidity Mismatch

This is the most significant structural risk, and it is worth understanding clearly.

During a market stress event, ETF investors may rush to sell. The fund can quickly liquidate its Apple or Nvidia shares to meet those redemptions. It cannot quickly liquidate its OpenAI position. In practice, this means the private holdings stay in the portfolio while the liquid holdings are sold, which can distort the fund's composition and cause the ETF to trade at a meaningful discount to its stated NAV.

### Valuation Opacity

Private holdings are not marked to market daily. They are typically priced at the last funding round valuation, adjusted using internal models. This means the price you see in the ETF's NAV may not reflect current reality. If sentiment around a company deteriorates but no new funding round has occurred, the valuation lag can persist for months.

### Late-Stage Entry

Retail investors accessing private companies via ETFs are almost always entering at late-stage valuations — after institutional venture investors have already captured the earliest and typically largest gains. At OpenAI's $852 billion valuation, the arithmetic of a further 10x return is very different from what it was at a $10 billion valuation. That does not make it a bad investment, but it does mean the return profile is closer to growth equity than early-stage venture.

### Fee Layering

You pay the ETF's management fee. Underneath that, there may be fees charged by the SPV or intermediate fund holding the private shares. These layer in ways that are not always visible in the headline expense ratio.

### Structural Dilution

A 3% allocation to OpenAI means that even a doubling of OpenAI's value adds only around 3 percentage points to the ETF's return. Meaningful, but not material. If the primary reason you are buying the ETF is OpenAI exposure, you are getting a thinner version of that bet than it might appear.

It is worth being precise about the language here.

Buying an ETF that holds a 3% position in OpenAI via an SPV is not the same as investing in OpenAI. You hold shares in a listed fund. That fund holds units in a vehicle. That vehicle holds shares in a private company. Each layer is a legal and economic separation from the underlying asset.

This does not make it worthless. But it does mean you should not evaluate the investment as though you are a direct shareholder in OpenAI. Your rights, your information access, and your economic exposure are all filtered through multiple intermediaries.

The better framing: you are buying a liquid, structured proxy for a private company within a broader portfolio. That can be useful. It is just not the same thing as owning the underlying.

The packaging of private assets into retail investment vehicles is a genuine structural shift, not a passing trend. Companies are staying private longer, retail demand is rising, and asset managers have strong commercial incentives to build these products. The direction of travel is clear.

But retail investors — particularly in the UK — need to be clear-eyed about what they are actually buying.

If you are a US investor with a brokerage account and an appetite for innovation-themed ETFs, a fund with meaningful private company exposure can be a reasonable satellite position. The diversification, liquidity, and access it provides are real, even if diluted.

If you are a UK investor hoping to access this through an ISA, the path is narrower. You will need to either use a GIA and forgo the tax wrapper, or look at UK-listed alternatives such as investment trusts — which have their own structural differences but are genuinely ISA-eligible.

In both cases, the key discipline is the same: understand the structure before you invest. Private markets reward structural understanding. That is as true when you are accessing them through an ETF as it is when you are going in directly.