Should You Buy a Fund of Private Companies? What Investors Need to Know

• The Robinhood Venture Fund will charge a 3.125% sales load and 2% annual fee, with one expert estimating the portfolio must outperform by roughly 13% just for investors to break even after accounting for fees and typical closed-end fund discounts to net asset value
• Major institutions are pulling back from private equity: Oregon and Washington state pension funds lowered allocations, while Princeton reduced return expectations and Harvard is cashing out holdings early as private investments lag the S&P 500
• Academic research shows private equity funds have returned about the same as broad market indexes since 2006, while collecting an estimated $230 billion in performance fees between 2006 and 2015

Summary: Robinhood Private Equity Fund Launch Raises Investor Concerns

Key Development:

Robinhood is launching the Robinhood Venture Fund (ticker: RVI), a closed-end fund listing on the NYSE in the coming weeks, aimed at democratizing access to private company investments for retail investors. CEO Vlad Tenev announced the goal to permanently open private investing to everyday investors.

Investment Details:

• Entry price: $25 per share
• Fee structure: 3.125% weighted sales load plus 2% annual fee (temporarily reduced post-launch)
• No performance fees charged

Market Context:

The launch follows President Trump's August executive order encouraging alternative assets in 401(k) plans. However, institutional investors are increasingly pulling back from private equity due to underperformance.

Warning Signs:

• Oregon and Washington state pension funds recently reduced private equity allocations
• Princeton lowered endowment return expectations as private investments lag the S&P 500
• Harvard is exiting holdings early
• A 2020 Oxford study found private equity has matched—not exceeded—broad market returns since 2006, while collecting approximately $230 billion in fees (2006-2015)

Cost Analysis:

University of Florida IPO expert Jay Ritter warns that fees significantly erode returns. After accounting for sales loads and potential discount-to-NAV trading (common for closed-end funds), investors would need the portfolio to outperform by roughly 13% just to break even—a challenging target given the S&P 500's 16% return last year.

Expert Perspective:

Analysts caution that SEC historically restricted such investments to wealthy individuals for investor protection reasons, suggesting retail investors should proceed carefully with these democratized private equity offerings.