A pooled fund is an investment vehicle where multiple investors combine their capital to invest collectively in a diversified portfolio managed by a professional manager.
A pooled fund aggregates funds from multiple investors into a single investment pool, which is then invested in a portfolio of assets according to a specified strategy. These funds can be structured as mutual funds, hedge funds, private equity funds, or other types of collective investment schemes. The core benefit of a pooled fund is that it provides investors access to a diversified portfolio managed by expert portfolio managers, often with lower minimum investment requirements compared to direct investments. In finance and wealth management, pooled funds allow investors to share in the returns and risks of the collective investment. Each investor owns units or shares proportional to their contribution in the fund and benefits from economies of scale, professional management, and diversification. Pooled funds are commonly used in institutional investing, including family offices and wealth management due to their efficiency and access to specialized strategies.
Pooled funds are critical for strategic asset allocation and portfolio diversification within family offices, wealth managers, and investment advisors’ portfolios. By investing in pooled funds, these entities can efficiently gain exposure to various asset classes, sectors, or geographies without the complexity and cost of direct investments. This structure simplifies reporting, valuation, and performance measurement as the entire portfolio of underlying securities is managed and reported by the fund manager. From a tax perspective, pooled funds may offer advantages in deferral of taxes or consolidated tax reporting depending on jurisdiction and fund structure, facilitating streamlined tax planning. Additionally, governance is simplified by having a professional manager oversee investments according to a defined mandate, reducing administrative burden and providing fiduciary oversight for investors.
Consider a pooled fund that gathers $100 million from 100 investors, with each investor contributing $1 million. The fund uses this capital to invest in a diversified portfolio of stocks, bonds, and alternative assets. If the portfolio gains 8% in a year, the investor's share would also increase by approximately 8%, resulting in an $80,000 gain on their $1 million investment, minus any fees charged by the fund manager.
Commingled Fund
A commingled fund is similar to a pooled fund in that it pools capital from multiple investors, but is typically structured as a private partnership or trust rather than a mutual fund. Both provide collective investment benefits; however, pooled funds often have public regulatory disclosures while commingled funds cater more to institutional investors with fewer regulatory requirements.
What is the difference between a pooled fund and a mutual fund?
While both pooled funds and mutual funds pool capital from investors, mutual funds are a specific type of pooled fund regulated and registered with securities authorities, often with daily liquidity and retail investor focus. Pooled funds is a broader term that includes mutual funds, hedge funds, private equity funds, and other collective investment vehicles which may have varying liquidity and regulatory structures.
Are pooled funds suitable for family offices?
Yes, pooled funds are highly suitable for family offices as they provide access to diversified, professionally managed portfolios and often include alternative investment strategies that may be otherwise inaccessible. They support efficient portfolio management, reporting, and governance aligned with the complex needs of family offices.
How are fees typically structured in pooled funds?
Pooled fund fees usually consist of a management fee based on assets under management and sometimes a performance fee based on returns above a benchmark or hurdle rate. Fee structures vary by fund type, investment strategy, and management company, so investors should review prospectuses or offering documents carefully.
