Private Investment Companies

Written by Shirley Parker
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Private investment companies have often been set up to share tips among their members on investing opportunities in the early stages of an offering. If they have no more than 100 investors, they may be exempt from federal securities laws. If their investors own a sizable amount of other assets in addition to securities, they may also be exempt, almost regardless of size.

At times, private investment companies have their own special projects for which they have put up the money. It may be a small fleet of private aircraft, an oceanography expedition, or a new gold mine in South America. In any event, they haven't yet offered shares for sale to others not in the group, and probably never will. Generally, such sophisticated investors have substantial financial assets.

Hedge Funds

Some private investment companies are known as hedge funds. Their managers' objectives are the same as those who manage mutual funds--that is, to turn a profit. However, they tend to pursue more speculative practices, which in turn increases the loss potential.

Hedge fund managers aren't often required to register with the SEC, and the funds aren't subject to very many regulations. Most of the funds voluntarily restrict membership to the very wealthy, or in other words, to millionaires. However, some do have minimum investments that may be as low as $25,000, as just an example. With these kinds of funds, you can't ask too many questions before handing over your money. Those in the regulated investment field will tell you to be very sure of what you're doing.

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