What is a Pooled Investment Vehicle? | RealVantage Insights (2024)

Table of Contents

  1. Pros and Cons of a Pooled Investment Vehicle
  2. Pros
    a. Negotiating Power
    b. Professional Management
    c. Diversification
  3. Cons
    a. Management Fee
  4. Examples of Pooled Investment Vehicle
    a. Mutual Funds
    b. Exchange-Traded Funds
    c. Real Estate Investment Trusts (REITs)

Pooled Investment refers to a group of investors injecting funds into a common pool to buy shares or units of an investment product/company. Generally, a pooled investment vehicle is one large portfolio of investment assets funded by numerous investors. Investors of these Pooled Investment Vehicles obtain their returns in the form of dividends or interest distributions and/or price appreciation as the investment’s per-share or per-unit price rises.

Typically, a pooled investment vehicle is managed by a team comprising portfolio managers and analysts. This group of professionals are generally subject matter experts in a certain field or industry, where they invest on their investors’ behalf In return for rendering such a service, investors are required to pay the fund manager a management fee.

Pros and Cons of a Pooled Investment Vehicle

Pros:

Negotiating Power

When funds are pooled together from individual investors, it increases the range of investment opportunities available. In addition, larger investment funds have better negotiation power when it comes to purchasing assets as they face less competition.

Professional Management

When investing in a pooled investment vehicle, investors are putting their money under the management of money managers; industry professionals who devote the majority of their time researching and analysing various industries. In addition, management fees are usually charged as a percentage of the Pooled Investment Vehicle’s gross asset value.

Investing in a Pooled Investment Vehicle can save an individual a lot of time. The tedious process of conducting a thorough due diligence on investment opportunities falls on the investment manager of the fund. In addition, the fund manager will provide you with timely updates on the fund performance.

Diversification

In a Pooled Investment Vehicle, the fund is typically large enough to enable investors to gain access to a broader range of investments than a single individual investor. A larger pool of funds means the possibility of diversifying across various industries, businesses, geography and asset classes.

Cons:

Management Fee

One of the downsides of having your money professionally managed is that you are required to pay management fees. These fees do eat into the returns.

Examples of Pooled Investment Vehicle

Mutual Funds, Exchange-Traded Funds (ETFs), and Real Estate Investment Trusts (REITs).

Mutual Funds

A mutual fund is a type of financial vehicle that invests in securities like stocks, bonds, money market instruments, and other asset classes. Mutual funds are a type of open-ended investment, which means the company that runs the fund can create new shares or units on demand to sell to investors. The fund also reserves the right to buy back the shares or units from investors.

Mutual funds can be actively or passively managed by money managers. In actively managed mutual funds, the money managers typically use the S&P 500 as the benchmark and try to beat its corresponding returns by actively making decisions about what assets to buy and sell within the fund. Thus, active investing involves taking a hands-on approach by a portfolio manager. Portfolio managers use their experience, knowledge, and analysis to make choices about what to buy or sell in the portfolio.

On the other hand, passive investing generally involves investing over the long term with very limited buying and selling within the portfolio. A passively managed mutual fund tracks an index such as the S&P 500 or NASDAQ, and attempts to match its performance. Thus, in general, such passively managed funds are not expected to outperform the market, but rather, perform in line with the market. Another notable difference is that actively managed funds have higher management fees than passive funds that just track on index. The former usually charge a performance fee on top of a base fee.

Exchange-Traded Funds

An exchange-traded fund (ETF) is a hybrid of a mutual fund and a company stock. ETFs comprises a portfolio of investments that can include stocks, bonds, real estate and commodities. The difference between a mutual fund and an ETF is that while the price of a mutual fund is set once per day at the close of trading, an ETF is traded throughout the day on the exchange just like any stock. The price of an ETF is influenced by stock market volatility.

Similar to a mutual fund, as explained above, an ETF can also be passively or actively managed. In an actively managed ETF, money managers will use an index as a benchmark and try to beat the index. Conversely, in a passively managed ETF, fund managers will try to replicate the return of the said index. ETFs tend to have a lower expense ratio as compared to mutual funds. For example, SPDR S&P 500 ETF Trust (SPY) is an ETF that tracks the S&P 500 and is one of the largest and most heavily-traded ETFs in the world.

Real Estate Investment Trusts (REITs)

In a REIT structure, a company pools money from various investors, including individuals and institutions, and uses the pooled money to purchase several real estate opportunities to form a portfolio of properties.

REIT is one of the most popular investment vehicles among investors because it allows investors to invest in real estate with smaller amounts without having to manage the property. A REIT company buys properties to invest in, and investors buy shares of the REIT. REIT also helps investors to diversify because it owns a basket of properties which helps investors to eliminate concentration risks. REITs listed in Singapore (S-REIT) are particularly attractive to individual investors as any distribution that they receive is not subjected to personal income tax. Moreover, any S-REIT that pays out at least 90% of their distributable income will be exempted from paying Singapore corporate income tax. (However, any distributable income that is retained by the REIT is subjected to corporate income tax).

Examples of Singapore REITs include Keppel DC REIT, Maple Commercial Trust, ParkwayLife REIT, etc.

REIT structure, Source: Moneysense

Find out more about real estate co-investment opportunities at RealVantage. Visit our team, check out our story and investment strategies.

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Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.

As an enthusiast with in-depth knowledge of pooled investment vehicles, I can provide a comprehensive understanding of the concepts mentioned in the article. My expertise is grounded in practical experience and a profound understanding of investment vehicles. Now, let's delve into the concepts discussed:

Pros and Cons of a Pooled Investment Vehicle

Pros:

  1. Negotiating Power:

    • Pooled funds provide increased negotiating power due to the collective capital from individual investors.
    • Larger funds face less competition, enhancing their ability to secure favorable asset purchase terms.
  2. Professional Management:

    • Investors entrust their funds to dedicated money managers, industry professionals specializing in research and analysis.
    • Management fees, though incurred, allow investors to benefit from the expertise of fund managers, saving time on individual due diligence.
  3. Diversification:

    • Pooled funds, being substantial in size, enable diversification across industries, businesses, geography, and asset classes.
    • Investors can access a broader range of investments compared to individual investors.

Cons:

  1. Management Fee:
    • A downside of professional management is the payment of management fees, which can reduce overall returns.
    • Investors need to weigh the benefits of expert management against the associated costs.

Examples of Pooled Investment Vehicles

Mutual Funds:

  • A type of open-ended investment vehicle investing in various securities like stocks, bonds, and money market instruments.
  • Actively or passively managed, with active funds aiming to outperform benchmark indices like the S&P 500.
  • Actively managed funds generally have higher management fees.

Exchange-Traded Funds (ETFs):

  • Hybrid of a mutual fund and a company stock, traded throughout the day on exchanges.
  • Comprises a portfolio of investments, including stocks, bonds, real estate, and commodities.
  • Can be actively or passively managed, with passively managed ETFs often having lower expense ratios than mutual funds.

Real Estate Investment Trusts (REITs):

  • Involves pooling money from various investors to purchase real estate opportunities and form a portfolio.
  • Allows investors to invest in real estate without managing properties directly.
  • REITs promote diversification by owning a basket of properties, eliminating concentration risks.
  • Some REITs, like those listed in Singapore (S-REITs), offer tax advantages to investors.

In summary, pooled investment vehicles provide distinct advantages such as negotiating power, professional management, and diversification. However, investors should carefully consider the associated management fees. Examples like mutual funds, ETFs, and REITs illustrate the diverse nature of these investment options.

What is a Pooled Investment Vehicle? | RealVantage Insights (2024)

FAQs

What is a Pooled Investment Vehicle? | RealVantage Insights? ›

Generally, a pooled investment vehicle is one large portfolio of investment assets funded by numerous investors. Investors of these Pooled Investment Vehicles obtain their returns in the form of dividends or interest distributions and/or price appreciation as the investment's per-share or per-unit price rises.

What does pooled investment vehicle mean? ›

Pooled funds are investment vehicles such as mutual funds, commingled funds, group trusts, real estate funds, limited partnership funds, and alternative investments. The distinguishing feature of a pooled fund is that a number of retirement boards or investors contribute money to the fund.

What is investment pooling? ›

What Are Pooled Funds? Pooled funds are funds in a portfolio from many individual investors that are aggregated for the purposes of investment. Mutual funds, hedge funds, exchange traded funds, pension funds, and unit investment trusts are all examples of professionally managed pooled funds.

Is an LLC a pooled investment vehicle? ›

Common Types of Pooled Investment Vehicles

For EquityMultiple investments, this is almost always a Limited Liability Corporation (LLC).

Are ETFs pooled investment vehicles? ›

Exchange-traded funds, or ETFs, are pooled investment vehicles that offer exposure to a particular area of the market. The first American ETF, the S&P 500 Depository Receipt (SPDR), was released in January 1993 by the American Stock Exchange and was designed to mimic the S&P 500 Index.

What is the difference between a pooled investment vehicle and a mutual fund? ›

Pooled funds involve multiple investors pooling their money for a common investment objective. In contrast, mutual funds accumulate funds from numerous investors to create a diversified portfolio. Finally, composite funds combine various asset classes into a single investment product.

Can a trust be a pooled investment vehicle? ›

Key Takeaways

A master trust is an investment vehicle that collectively manages pooled investments. A portfolio manager is responsible for overseeing the assets in the master trust. Employers can use a master trust structure for pooling investments in an employee benefit plan.

What is an example of a pooled investment vehicle? ›

Common pooled investment vehicles are mutual funds, exchange-traded funds (ETFs), hedge funds, private equity funds, closed-end funds, real estate investment trusts (REITs), unit investment trusts (UITs), and pension funds.

Is a pooled investment vehicle a private fund? ›

Private Fund. A private fund is a pooled investment vehicle that is excluded from the definition of investment company by Section 3(c)(1) or 3(c)(7) of the Investment Company Act—commonly referred to as a 3(c)(1) Fund or a 3(c)(7) Fund.

What is the difference between a fund and an investment vehicle? ›

Investment funds are collective investment vehicles where investors contribute their money to a common fund managed by financial professionals called fund managers. These funds pool money from various investors and are used to invest in various assets, such as stocks, bonds, real estate, or other financial instruments.

What is considered an investment vehicle? ›

An investment vehicle is a financial account or product used to create returns. The term can generally refer to any container investors use to grow their money. Most often it includes stocks, bonds, and mutual funds, can carry high or low risk, and exists as part of a larger investment strategy.

Is an LLC an investment vehicle? ›

The management flexibility, tax benefits and protection of personal assets offered by LLCs make it a great vehicle for investment opportunities. Since there can be more than one member, it's often the business entity of choice when multiple people are looking to invest in something as a group.

Can a company be an investment vehicle? ›

A limited company is one of the most common ways to run a business. But your limited company can also be used to hold investments. There are advantages and disadvantages of using this option with regards to tax, and you'll want a good Adviser to help you work out whether the pros outweigh the cons, or vice versa.

Is a hedge fund a pooled asset vehicle? ›

"The term 'hedge fund' refers generally to a privately offered investment vehicle that pools the contributions of its investors in order to invest in a variety of asset classes, such as securities, futures contracts, options, bonds, and currencies."

Is a separately managed account a pooled investment vehicle? ›

As Investopedia explains it, "an SMA is a portfolio of assets managed by a professional investment firm." Unlike pooled investment vehicles like mutual funds and ETFs, which are comprised of "investments shared by a group of investors," separately managed accounts are personalized to the individual investor, who ...

Why not invest in ETF? ›

Market risk

The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.

What are the two types of investment vehicles? ›

Investment vehicles include individual securities such as stocks and bonds as well as pooled investments like mutual funds and ETFs. Investment vehicles can be categorized into two broad types: Direct investments. Indirect investments.

What is an investment vehicle that is made up of a pool of money? ›

A mutual fund is an investment vehicle that allows multiple investors to pool their money to buy stocks, bonds and other securities. A fund manager determines which assets to buy and when to sell.

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