Ways to invest your money can be divided into two paths — the direct ownership of securities such as stocks and bonds, or through pooled investments where you earn a proportional share of the profits and income earned by the pooled assets. Some types of pooled investments are so well-known you will recognize them immediately, while other types offer more exotic investment exposure.
Regulated investment companies governed by the Investment Company Act of 1940 are the most widely available form of pooled investment accounts. These accounts are better known as mutual funds, closed-end funds, unit investment trusts and exchange traded funds — ETFs. These investment types are all forms of pooled investment accounts. Investors buy shares of the funds or trusts and participate in the gains, losses and income earned by the portfolio of securities owned by a mutual fund or ETF. This type of pooled investments is highly regulated, and the share prices and results are published by the fund companies and financial news sources.
Pension funds that collect and invest money for the eventual payment of retirement pensions are also pooled investment accounts. Pooled account pension funds collect contributions from a specified group of employers and employees and invest the money as a whole. Retirement benefits are paid out of the pool when the participants reach retirement age. A retirement plan with individual accounts — such as a 401(k) plan — would not be a pooled investment account.
Hedge funds are pooled investments that use hedging investment tactics — to profit from rising or falling markets — or invest in alternative types of investments or assets. Hedge funds restrict investment to high minimum investments and place limits on times and amounts of withdrawals. Hedge funds are typically organized as limited partnerships. The manager of the fund is the general partner and controls how the pooled money in the fund is invested or traded. Unlike mutual funds — whose operations and investment choices are strictly governed — a hedge fund can use any investment technique or type of asset to achieve its profit goals.
Managed Futures Accounts
The business of managed futures trading is where the term "pooled account" is often used. Investors who want to participate in futures trading with a professional futures trader have the choice of an individual managed futures account or participating in a managed futures pooled account. An individual account is owned by the investor, and the commodity futures trading is managed by a registered commodity trading adviser, or CTA. A registered commodity pool operator — CPO — manages a pooled investment fund that trades futures contracts. All of the investors in a commodity pool share in the profits and losses generated by the pool operator.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.