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Investment fund

Investment fund

Investments funds are collective pools of capital coming from multiple investors that is used to purchase securities, and other assets, in particular regions and/or industries. Each investor in an investment fund typically has complete ownership and control of their shares, unless their are agreements made stating otherwise.

Typically investment funds provide a broader selection of investment opportunities, access to more capital management and business expertise, and lower investment fees compared to what independent investors could have access to when searching for investment opportunities. Standards categories of investment funds include hedge funds, private-equity funds, mutual funds, closed-end funds, special purpose acquisition companies, exchange-traded funds, and money market funds.

History

In 1822, the world's first investment fund was created in Belgium. However, they became most widespread only after WWII. They became direct competitors of banks and financial institutions, seriously limiting their further development.

After the 2008 financial crisis in the US, many investment funds changed their development strategy. If earlier the emphasis was on active participation in the life of the market: buying and selling securities, investing in young startups, etc., now the funds have switched to a passive strategy: buying shares of certain indices. Only three investment companies have achieved the greatest success here: Vanguard, BlackRock and State Street Corporation, called the “Big Three”. In total, they own 40% of all public US companies and 88% of companies from the S&P500 index. Thus, the shares of most companies are in the hands of a small group of people. During the COVID-19 pandemic, their wealth has increased even more. At the same time, it should be noted that the concentration of ownership exceeds that observed in 1870-1890.

Today, many experts note that the role of investment markets is declining, as they increasingly prefer passive investment. This leads investors to look for other ways to invest.

Main functions:
  • Risk diversification by investing funds of individual investors in various financial market instruments;
  • Accumulation of savings of individual investors;
  • More efficient management of investment resources, which cannot be provided by individual investors due to the lack of necessary professional skills and experience;
  • Reducing the cost of operations in the securities market.

Timeline

Further Resources

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References

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