Pooled Investment Vehicles

Pooled Investment Vehicle

A fund where an adviser pools capital from multiple investors, manages the assets, and shares profits/losses proportionally based on each investor's stake

Investment Company

An SEC-regulated entity that pools money from investors; includes mutual funds, ETFs, closed-end funds, and UITs; available to the general public with full disclosure requirements

Private Fund

A pooled investment vehicle not classified as an investment company; available only to accredited investors; includes hedge funds, private equity, and venture capital; fewer disclosure requirements

Open-End Fund

A portfolio of securities bought and redeemed directly through a fund sponsor; shares are created/destroyed as investors buy in or cash out; includes mutual funds and ETFs

Mutual Fund

An open-end fund where investors buy and sell shares directly through the fund family at end-of-day NAV; when investors redeem, the fund sells underlying assets to pay them out

ETF (Exchange Traded Fund)

An open-end fund whose shares trade on an exchange throughout the day between buyers and sellers; tax efficient relative to mutual funds; price kept near NAV by Authorized Participants

Authorized Participant (AP)

A large financial institution that creates and redeems ETF shares to keep the ETF's market price in line with its NAV

Closed-End Fund

An investment company that raises a fixed amount through an IPO and trades on an exchange; no APs, so market price can differ from NAV; manager can change portfolio composition

Unit Investment Trust (UIT)

An investment company with a fixed, unchanging portfolio; considered unmanaged; investors redeem shares with the trustee

NAV (Net Asset Value)

The per-share value of a fund calculated as Market Value of Assets minus Fund Liabilities divided by Fund Shares Outstanding; determines an investor's return

Actively Managed Fund

A fund where a manager selects securities to buy and sell with the goal of outperforming a benchmark

Index Fund / Passive Fund

A fund that mimics a market index such as the S&P 500; managers do not select securities; generally lower cost than active funds

Front-End Load

A commission of 0–6% charged when purchasing mutual fund shares

Operating Expenses

An annual fee of 0.015–5% charged as a percentage of fund assets to cover management, staff, and operational costs

12b-1 Fee

An annual fee of 0.25–1% charged to cover a mutual fund's marketing, promotion, and distribution costs

Back-End Load

An exit fee of 0–6% charged when an investor redeems mutual fund shares; may decrease the longer shares are held

Prospectus

A document a mutual fund must provide disclosing its strategy, risks, holdings, and fee structure

Leveraged ETF

An ETF that uses derivatives and leverage to deliver a multiple such as 2x or 3x of the daily return of an index; very risky and unsuitable for long-term holding

Inverse ETF

An ETF designed to deliver the negative multiple such as -1x, -2x, or -3x of the daily return of an index; used to bet against the market

Accredited Investor

An investor eligible to invest in private funds; must have net worth over $1M excluding primary residence, income over $200K individually or $300K with spouse, or be a licensed investment professional

Hedge Fund

A private fund investing across many asset classes using strategies like shorting, leverage, and derivatives; typically charges a 2 and 20 fee; approximately $5 trillion AUM

2 and 20

The typical hedge fund fee structure: 2% annual management fee on assets plus 20% performance fee on profits generated

Private Equity Fund

A private fund that invests in or acquires companies to improve efficiency and profitability, typically exiting after approximately 5 years via sale or IPO; approximately $5 trillion AUM

Limited Partners (LPs)

The investors in a private equity fund who provide capital

General Partners (GPs)

The managers of a private equity fund who make investment decisions

Venture Capital

A private fund that invests in early-stage companies, providing startup capital and management; exits via merger, acquisition, or IPO; approximately $1–2 trillion AUM

Form ADV

A required filing by private funds disclosing their fees and strategies; searchable at adviserinfo.sec.gov

13F

An SEC filing required of funds managing over $100M, disclosing their quarterly equity holdings

13G

An SEC filing disclosing ownership of 5%+ of a company with no activist intent

13D

An SEC filing disclosing ownership of 5%+ of a company with activist intent

J-Curve

The pattern of early negative returns followed by growing gains in private equity and VC investments, as capital is deployed before yielding returns as investments mature

Diversification

Risk reduction achieved by holding many different securities across a portfolio

Robert F. Smith

Founder and CEO of Vista Equity Partners; focuses on software and IT buyouts; paid $139M fine in 2020 DOJ tax evasion case