Pooled funds

Pooled funds are sums of money that have been aggregated from multiple investors for the purposes of investing. Due to economies of scale, these funds enable the investors to obtain larger returns than they could individually receive.

Majority of the most common investment entities can be considered pool funds, for example, hedge funds, mutual funds and pension funds. 

These pooled funds differ from one another depending on multiple factors – different risk appetites for their investors, industries in which the fund invests in, geographic scope of investment and asset classes considered. 

Main advantages of pooled funds:

Greater investment opportunities – due to the greater amount of funds available for investment, it is possible to invest in a greater variety of investments, including those options that normally pose higher barriers for entry for individuals.

Greater diversification opportunities and less risk exposure – due to larger availability of funds, it’s possible to invest in more instruments, thus executing a more conscious risk mitigation policy, by investing in instruments that are reversely correlated or weakly correlated with one another. 

Main disadvantages of pooled funds:

Larger fees – pooled funds are normally managed by investment professionals, who make the most important decisions and are carrying out the day-to-day research. In order to cover their commissions, the funds commonly incur larger fees than an individual normally would. 
Small individual oversight – due to the fact that most of your investment decisions are made by fund managers and institutional investors, individual investors have little control over individual investment decisions that can significantly increase the risk of losses.