Private-equity investing has long been the domain of accredited investors. Unless you have a net worth of at least $1 million, this area has been off-limits. But now a new exchange-traded fund, the PowerShares Listed Private Equity Portfolio (AMEX:PSP), gives investors exposure to mid- and small-cap listed private-equity companies.

There are a number of differences between a typical private-equity investment and PSP that make this ETF attractive. The first is that PSP is priced throughout the day, something not usually done with private-equity funds. Another difference is that investors in the fund will know what they're buying, which is not always the case with typically opaque private-equity funds. In addition, the valuations for PSP shares are set by the market, not the private-equity fund's general partners. Finally, the expense ratio for the PSP is currently capped at 60 basis points -- not cheap as far as ETFs go, but still well below what you would pay the general partners of a private-equity partnership.

PSP tracks the Red Rocks Capital Listed Private Equity Index, which includes more than 30 U.S. publicly listed companies with direct investments in more than 1,000 private businesses. To be included in the index, companies must invest the majority of their assets in private companies. Since all of the companies in the index are publicly traded, the fund's portfolio should have a good degree of liquidity -- something that's also not always present with private equity.

The fund is spread out among small- and mid-cap companies at a roughly 55%/45% split. Value companies dominate the mix at 60%, while growth comes in at 40%. A half-dozen companies make up nearly 45% of the fund and include Leucadia National (NYSE:LUK) and American Capital Strategies (NASDAQ:ACAS) at 8.5% each, followed by SVB Financial (NASDAQ:SIVB) at 7.9%, and then three holdings of roughly 6.3% each -- CapitalSource (NYSE:CSE), KKR Financial (NYSE:KFN), and Allied Capital (NYSE:ALD).

Because PSP is the first private-equity ETF, it is a concept that has yet to prove itself. There is no comparable fund to look at and see what to expect. Furthermore, PSP was launched in late October of 2006, so the fund itself does not have much of a track record to consider.

Another potential area for concern is that the fund's holdings may include some volatile and potentially illiquid (not easily traded) securities. As a result, larger-than-normal discounts and premiums in net asset value may develop between the underlying securities and the ETF price.

What's more, with roughly 30 stocks in its portfolio, PSP is highly concentrated. If one of its stocks were to blow up, there could be significant harm to the fund. It also has about 73% of its assets in the finance sector.

Expect PSP to perform differently from other private-equity funds since it invests in publicly traded companies, which have higher regulatory burdens and costs than private firms do.

Even though there are many risks to consider with an investment in PSP, the fund does offer some advantages that you can't currently get with any other ETF or mutual fund. Private equity tends not to be correlated to the broader stock market, so an investment in this area makes a good diversification move. Although capital has flooded into the private-equity area for the past couple of years, the annual returns in this sector are higher than they are for traditional stocks and bonds and can therefore be very enticing.

For more on exchange-traded funds, visit the Fool's ETF Center.

Fool contributor Zoe Van Schyndel lives in Miami and enjoys the sunshine and variety of the Magic City. She does not own any of the funds mentioned in this article. The Motley Fool has a disclosure policy.