Section: 3 Types of Investment Companies

Sub Section: 3 Other Investment Organizations

There are intermediaries not formally organized or regulated as investment companies that nevertheless serve functions similar to investment companies. Three of the more important are Commingled Funds, Real Estate Investment Trusts and Hedge Funds.


i) Commingled Funds: These are partnerships of investors that pool their funds. The management firm that organizes the partnership, for example, a bank or insurance company, manages the funds for a fee. Typical partners in commingled funds might be trust or retirement accounts which have portfolios that are much larger than those of most individual investors but are still too small to warrant managing on a separate basis. These are similar in form to open-end mutual funds but instead of shares, they offer units that are bought and sold at NAV.


ii) Real Estate Investment Trusts (REITs): A REIT is similar to a closed-end fund and invests in real estate or loans secured by real estate. Besides issuing shares, they raise capital by borrowing from banks and issuing bonds or mortgages. Most of them are highly leveraged, with a typical debt ratio of 70%. There are two principal kinds of REITs: Equity trusts invest in real estate directly, whereas mortgage trusts invest primarily in mortgage and construction loans.


iii) Hedge Funds: These are privately organized pooled investment vehicles that invest primarily in publicly traded securities and derivatives. These funds are not as regulated as mutual funds, pension funds, etc. and have a fair degree of liberty to select their investments.