What is a Pooled Investment Vehicle?

When investors pool together their funds to gain advantages of a bigger investment sum, advantages that meagre monetary resources wouldn't bestow, its called a Pooled Investment Vehicle (PIV). All kinds of funds like pension funds, mutual funds, hedge funds, unit investment trusts, as well as private funds, can be bought via Pooled Investment Vehicles.

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How Does a Pooled Investment Vehicle Work?

Common types of pooled investment vehicle include:

Mutual Funds: Managed by a professional, who invests the pooled money in different underlying assets on behalf of the investors in the mutual fund. 

Pension Funds: An account opened by employers on behalf of employees to save their retirement funds or provident funds. 

Private Funds: Not recognized as investment firms by the Securities Exchange Commission (SEC), these include private equity funds and hedge funds. 

Unit Investment Trusts (UIT): This is a time bound fund with a fixed portfolio sold in units to investors. Like mutual funds, UITs invest in a range of assets to diversify the investment portfolio, but these assets do not change over the lifetime of the UIT, rather the UIT expires after a set period. 

Hedge Funds: These are risky undertakings that use pooled money from clients to invest in high risk-high return assets, exotic securities, using techniques like shorting, and other long term strategies aimed at maximizing returns, a.k.a alpha returns. 

Advantages of Pooled Investment Vehicles

• Pooled resources can be invested in diverse assets that would be out of reach of a single investor.
• It facilitates portfolio diversification as access to a larger pool of money opens up more investment possibilities.
• Theres considerable saving on transactional costs.

Disadvantages of Pooled Investment Vehicles

• Individuals have less say over the final investment decisions.
• Conflicting interests, goals, and expectations amongst group members can lead to a glitchy investment strategy resulting in poor returns.
• Every investment requires group consensus, which might be cumbersome at best, and extremely difficult and at worse with lost opportunity costs, especially in volatile market scenarios.