Posted by Admin | May 7th, 2014

To understand what a private investment fund is and how it works, you need to know the basics of investment funds in general. There are a few major differences between regular investment funds and private investment funds, but they are more similar than dissimilar.

How an Investment Fund Works

An investment fund pools the resources of several investors to allow them to make their investment dollars go further. For instance, an individual investor may not have the capital that’s needed to invest in certain securities on his own. By participating in an investment fund, however, he can do so and enjoy many of the same benefits.

With an investment fund, cash from numerous investors is pooled together and then invested in securities that meet the objectives and rules of the fund, which are established ahead of time. A fund manager is put in charge of it all, and his job is to locate securities that meet the objectives of the entire fund. In this way, a lot of the legwork is already done for the participating investors, so they can reap the benefits—and profits—without having to devote a lot of time to research and other efforts.

There are many benefits to participating in an investment fund. Risk is spread out among the participating investors, and the associated fees are as well. Regular investment funds are governed by the Investment Company Act of 1940, the Securities Act of 1933 and the Securities Exchange Act of 1934, so investors enjoy a great deal of protection. Investment funds help to deliver a consistent rate of return, making them very popular.

Discovering Private Investment Funds

Private investment funds differ from regular investment funds in a few ways. For one thing, they are usually limited to 100 or fewer investors, which is below those typically involved in a regular investment fund. These investors tend to have considerable wealth, which is largely why fewer are needed to fund these endeavors. Still, these investors enjoy many of the same benefits as those who participate in regular investment funds. Most notably, they assume a lot less risk and are able to enjoy the perks of investing in some high-dollar securities, which can include considerable profits and rates of return.

Another important way that private investment funds differ from standard investment funds is that they are often exempt from the kinds of federal securities laws and regulations that are typically imposed. That’s because the wealthy investors who participate in them are considered to be savvy enough to not require the same kinds of protection. This is beneficial to the investors because they have a lot more leeway in many regards. They enjoy more flexibility, so they’re often able to achieve more significant profits.

The vast majority of investors don’t have the kind of capital that’s needed to participate in private investment funds. Those who are able to do so, however, tend to be very happy with the results. As with standard funds, investors usually purchase fund units, and the number of units that’s owned determines each investor’s share of the profits. The more units an investor buys, the more he stands to make.