Thrivent has found a way for everyday folks to get a piece of the private equity market

Private equity has been an outperforming investment option for years, but it's not been an option for most investors.

Private equity investment options generally have been reserved for institutional investors or people who have at least $5 million or more to commit. That has left the bulk of investors watching from the lobby.

Now Minneapolis-based Thrivent has introduced an industry-leading option that lets regular folks sit at the big table for as little as $50 a month. The vehicle allows customers to add private equity investments to four of their asset allocation funds, whose styles range from moderately conservative to aggressive.

The idea is to help everyday investors have more options to grow their portfolios.

"We've modeled the potential impact. And if you assume certain historical performance, which is not guaranteed, but if you assume that and you look at what a 4%, to 6% weighting does, and then look at relative performance compared to pure funds, its meaningful," said Thrivent Chief Investment Officer David Royal. "We wouldn't do it if it wasn't."

It's extremely rare to have a daily valued mutual fund with a private equity component, Thrivent officials said. Other fund options with private equity exist but only to investors who meet wealth standards.

Thrivent started getting serious about private equity investing in 2006. Since then, those investments have increased from $250 million to about $9 billion of its total $180 billion in assets under management. Until recently, those investments have been held in excess capital accounts, which are the accounts insurance companies are required to maintain to ensure they are able to fund commitments in the event of unexpected claims.

Thrivent's growth in private equity has coincided with the Thrivent careers of Royal, also Thrivent's chief financial officer, and Jen Wilson, Thrivent's senior managing director of private equity. Both started with Thrivent in 2006 and have been looking for ways to bring the benefits of private equity to the masses.

Although private equity funds generally have outperformed the overall stock market with lower volatility, they have drawbacks. They typically require five- to seven-year holding periods, for example.

It took three years to develop the product, working through regulatory, legal, disclosure and pricing issues. One of the biggest challenges? Pricing. Private equity funds typically update the value of portfolios quarterly. A retail fund gets new pricing every day.

The Fortune 500 financial giant now has private equity components in four of its asset allocation funds. The long-term goal is to add 4% to 6% of private equity holdings in each fund.

Because of the nature of private equity, Royal said it may take several years before funds reach those target levels.

The Thrivent funds will specialize in lower middle-market private equity, Wilson said.

"These are groups that are largely buying from founders and taking those companies and helping to institutionalize them and bring them to the next level," Wilson said.

Thrivent looks for opportunities with private equity funds that range in size from $250 million to $2 billion. Those funds choose companies that they feel have an opportunity to grow, typically without financial engineering such as layoffs or selling off pieces of the investments.

A big portion of Thrivent's private equity dollars also are invested alongside private equity funds in specific companies.

"Forty percent of our dollars are actually what's called co-investment, where we actually do more than choose the company that we're investing in," Wilson said.