Investment entities are organizations that invest money into various assets on behalf of their stakeholders. Common examples include hedge funds, private equity funds, venture capital funds, and other pooled investment vehicles. The key feature of an investment entity is that it pools money from multiple investors and invests that capital according to a defined strategy to generate returns. In this article, we will explore the meaning and key characteristics of portfolio investment entities.
Investment entities pool capital from multiple stakeholders
Investment entities raise money from multiple parties such as institutions, high net worth individuals, pension funds and use that pooled capital to invest in assets like public and private stocks and bonds. By aggregating small investments into a large, diversified portfolio, investment entities provide their stakeholders exposure and access to investments that would otherwise be unavailable to them.
Investment entities are managed by professional asset managers
Investment entities delegate the management of capital to professional asset managers who have the skills, experience and resources to research investment opportunities and construct portfolios aimed at maximizing risk-adjusted returns.
Investment entities have defined investment mandates
Investment entities invest according to predefined investment strategies, guidelines and risk parameters that are disclosed to stakeholders upfront. This provides clarity and alignment on how capital will be deployed.
Investment entities charge fees for their services
Instead of directly investing their own capital, investment entities charge management fees and performance fees to their investors in exchange for managing their money. Common fee structures include a 2% annual management fee plus a 20% cut of any profits earned.
In summary, portfolio investment entities pool money from multiple parties, invest capital according to a defined strategy, delegate management to professionals, and charge fees for their services. Their purpose is to provide investors exposure, diversification and access to investments that would otherwise be unavailable.