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An overview of mutual funds, open-end funds, money market funds, private equity, and venture capital funds. Learn about their structures, advantages, and the history of venture capital industry. Understand the role of financial intermediaries and the future of regulation.
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A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities (stocks, bonds, short-term money market instruments, other mutual funds, other securities)
The term mutual fund is the common name for what is classified as an open-end investment company by the SEC. Being open-end means that, at the end of every day, the fund continually issues new shares to investors buying into the fund and must stand ready to buy back shares from investors redeeming their shares at the then current net asset value per share.
BRIAN KIM
Private equity funds are long-term investments in companies that are not traded in public markets and has a similar structure to hedge funds
Investors who are limited partners place their money with the managing (general) partner who make the private equity investment.
Investing in private equity has several advantages over investing in publicly traded companies
1. private companies are not subject to the controversial and costly regulations included in the Sarbanes-Oxley Act
2. Managers of private companies do not feel pressure to produce immediate profits
First steps towards a professionally-managed venture capital industry was the passage of the Business investment Act of 1958
During the 1960 to 1970 venture capital firms focused their activities primarily on starting and expanding companies. A lot of venture capital firms focused on silicon valley companies
The Nasdaq crash and technology slump which started in march 2000 hurt the entire venture capital industry.
Over the years, many venture firms had been forced to write-off their large proportions of their investments.
However the revival of an internet-driven environment in 2004 through 2007 helped to revive the venture capital environment.
Financial intermediaries are firms that borrow from consumer/savers and lend to companies that need resources for investment.
Governments has become involved in two ways, 1)by setting up federal credit agencies that directly engage in Financial intermediation and by supplying government guarantees for private loans
The Fundamental Services Provided by Financial Intermediaries
A host of services that are essential to the functioning of a modern economy.
Service one is access to the payments system.
Service two Financial intermediaries will continue to provide is access to liquidity.
There will always have to be some mechanism for channeling the savings of households into the investments of firms.... This is the fundamental role of a financial intermediary.
need to promote market discipline.
regulators will need to rely more on the financial firm’s own internal assessments of risk.
I believe it is important to continue to think about ways to reduce government guarantees and any negative influence they may have on firm behavior.
I am convinced that we should be thinking hard about how we might answer them if we want to ensure the smooth functioning of our financial system in the next century.
