Pooled Investment Vehicle Definition
When investors pool together their funds to gain advantages of a bigger investment sum, advantages that meagre monetary resources wouldn’t bestow, it’s 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.
A Little More on What is a Pooled Investment Vehicle – Investment Funds
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 recognised 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 maximising 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.
- There’s 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.
References for Pooled Investment Vehicles
Academic Research on Pooled Investment Vehicles
STRUCTURING POOLED FUNDS TO INCLUDE US INSTITUTIONAL INVESTORS, Kenyon, G., Marshal, P. (1996). Journal of Financial Regulation and Compliance, 4(4), pp.339-348. This journal examines the complexities associated with selling non U.S. Pooled Funds to U.S. investors with a solutions based approach.
RICs and the Retail Investor: A Marriage of Convenience or Necessity, Fisher, S.D., (2013). Tax Lawyer, 66(2), 331. This article sheds light on the prevalence of Regulated Investment Companies for managing Pooled Investment Vehicles, the laws governing them and the factors influencing them.
Attribution of investment performance: an analysis of Australian pooled superannuation funds, Gallagher, D. R. (2001). Accounting & Finance, 41: 41-62. This paper analyses the investment management of Pension Funds in Australia.
Investment Vehicles, Harris, L. (2018). CFA Institute Investment Foundations, 3(2), 14:33-57. This chapter discusses different Investment Vehicles in detail with a deep dive on Pooled Investment Vehicles.
The Savvy Investor’s Guide to Pooled Investments: Mutual Funds, ETFs, and More, Baker, H.K., Filbeck, G., Kiymaz, H. (2019). The Savvy Investor’s Guide, 1(1). This book explains the concept of Pooled Investment Vehicles and explores the different types of investment channels like Mutual Funds, UITs, ETFs, and more, available for PIVs.
Hedge funds: Regulation and Nonregulation, Torrey, Y.E.. (2009). This book studies hedge funds as a channel for Pooled Investment Vehicles, their federal regulation, measures taken by investors to discipline the industry, and the inherent risks in the system.
A brief overview of the types of ETFs, Petrova, E. (2015). Annals of Spiru Haret University Economic Series. This article explains Exchange Traded Funds (ETF) as a channel for Pooled Investment Vehicles, their management, trading process, performance measurement parameters, literature review, scientific studies, and more.
The performance of equity unit investment trusts, Comer, G & Rodriguez, J. (2019). Managerial Finance. This paper examines the performance of Unit Investment Trusts(UITs) after risk adjustments with data from 1487 UITs between January 2004 – December 2013.
An assessment of property investment vehicles with particular reference to German funds, Berry, J., McGreal, S., Sieracki, K., Sotelo, R. (1999). Journal of Property Investment & Finance, 17(5), pp.430-444, This article assesses the performance of Investment Vehicles in the German Funds market.
Pass Through Taxation of Collective Investment Funds – A Misguided Exception?, Dabner, J. (2002). The Tax Institute, 1-19. This article examines the different tax structures in Australia, applied to different Pooled Investment Vehicles like mutual funds, hedge funds, pension funds, and more, and reveals the striking contrasts in their taxation.