Tags: mutual fund | private equity | investing | retirement

Mutual Funds Buy Shares of Hot Privately Held Companies

By    |   Tuesday, 24 March 2015 10:30 AM

Major mutual fund companies are increasingly buying up shares of popular, privately held companies such as Uber, Airbnb and Pinterest.

If you're an investor who wants shares of high-risk, high-reward companies in your funds, that's a good thing. If not, you may want to steer clear of these funds.

To be sure, the holdings in these companies generally make up a very small percentage of the funds' assets, so it usually won't matter much either way.

Fidelity Investments, T. Rowe Price and BlackRock are major participants, the New York Times reports.

Mutual funds executed 29 deals totaling $4.7 billion last year to buy stakes in privately held companies, up from six deals valued at $296 million in 2012, according to CB Insights, The Times reports. T. Rowe Price led the way, with 17 investments in tech companies.

Some experts are worried about the trend. "I think it goes beyond what mutual funds were set up to do,” Leonard Rosenthal, a professor of finance at Bentley University, told the Times.

"It’s great for the portfolio manager, but it’s not necessarily in the interest of the shareholders of the fund. If investors are looking for a portfolio of risky securities, there are plenty of stocks to trade in the public market."

The flipside to that argument, of course, is that some investors would love to get in on hot new tech stock offerings before the initial public offering. And given that the funds' weighting in these companies is quite low, the risk seems limited.

Elsewhere on the investment front, Lou Carlozo of U.S. News & World Report offers several tips for millennials — adults born in the early 1980s and afterward — on how to become millionaires.
  • "Ignite your 401(k) with a company match," he writes. Among employees eligible for 401(k)s, nearly 40 percent of 20- to 29-year-olds and 31 percent of 30- to 39-year-olds save at levels below the company match threshold, according to Aon Hewitt. That's turning down free money that can work wonders over the years through the magic of compounding.
  • "Stock your 401(k) with stocks." That's because stocks have historical annual returns of 8 to 10 percent, compared with 3 percent to 7 percent for bonds.

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Major mutual fund companies are increasingly buying up shares of popular, privately held companies such as Uber, Airbnb and Pinterest. If you're an investor who wants shares of high-risk, high-reward companies in your funds, that's a good thing.
mutual fund, private equity, investing, retirement
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2015-30-24
Tuesday, 24 March 2015 10:30 AM
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