Private Equity
Private equity is pooled long-term capital that is invested in potentially high growth privately held companies. IOSCO defines a “private equity firm as a firm that operates, manages or advises Funds that support promising businesses / ideas (private equity portfolio company”. It further defines a private equity “portfolio company as a target company in which private equity firms invest on behalf of their Funds”. The ultimate goal is to improve such emerging businesses’ profitability and offload them at a profit. Common private equity investors are institutional investors and high net-worth individuals with large amounts of excess fund to commit to these types of investment opportunities. The main sources of private equity are thus angel investment, venture capital, growth / development capital and leveraged buy in (out) replacement capital.
Asset Backed Securities
Asset-Backed Securities (ABSs) are structured finance products backed by a pool of assets such as loans and receivables. ABSs are primarily serviced by the cash flows of a discrete pool of inflows from different types of financial assets that by their terms convert into cash within a finite period of time. Hence the security is created by buying and bundling loans such as residential mortgage loans, commercial loans / credit card receivables and creating securities backed by those assets, which are then sold to investors. The security is thus said to be “backed” by assets because its performance is dependent upon the performance of the underlying assets. While an ABS backed by mortgage is normally distinguished from the rest as a Mortgage Backed Security (MBS), it is, by definition, an ABSs.
Bonds
A bond is an investment security whereby an investor (bondholder) lends money through purchasing the bond security to a borrower (issuer) with the later promising to pay a specified rate of interest (coupon) in return during the life of the bond together with the repayment of the face value of the bond (the principal) on maturity (maturity date). A bond is therefore an instrument of an issuer’s indebtedness with the obliged repayment terms and conditions as laid out in the agreement.
Commodity Fund
A commodity fund is an internal scheme constituted for the purpose of investing in or holding commodities. Securities issued in terms of a commodity fund registered by the Commission can be traded on a Stock Exchange. Investing in commodities involves investing in raw materials that can be categorised into hard commodities that are extracted, such as metals and energy, or soft commodities that are grown and bred, such as crops and livestock.
Investing in commodities also involves investing in futures contracts, which can be lucrative but risky. Commodity funds are an easy way to diversify the use of resources and can provide investors with a number of benefits. However, the broad term “commodity fund” encompasses a number of different types of investment, including but not limited to the following:
- Natural resource funds
Funds that invest in companies engaged in commodity related businesses, such as coal, oil drilling and agricultural enterprises, are often referred to as natural resource fund.
- Commodity futures funds
Commodity futures funds invest in different commodity futures contracts, they are attractive as diversifiers and incline to have stock-like returns but tend to be uncorrelated with other asset classes.
- Pure Commodity funds
These funds are true commodity funds because they have direct commodity holdings. For instance, a gold fund that holds gold bullion would be a true commodity fund.
Exchange Traded Funds
An exchange-traded fund (ETF) is a pooled investment vehicle with shares (ETF shares) created out of the pool of underlying financial assets like stocks of shares, bonds, currencies and commodities amongst others. An ETF share in this case provides investors a proportionate interest in a pool of underlying assets. Hence an ETF share tracks the performance of the underlying asset. The share trades intraday on stock exchanges at a market-determined price. Consequently, ETF share prices fluctuate throughout the day. However, the security typically trades close to its Net Asset Value (NAV) over the course of the trading day.
Real Estate Investment Trusts (REITs)
REITs are real estate companies or private trusts (modelled after mutual funds) that own, operate or finance income producing real estates and or related assets as part of own investment portfolio. The property portfolio may include commercial, industrial, retail, mortgages or a mix of these real estate assets which would not otherwise be available to the individual investor. Most REITs however invest in mature income producing properties. A REIT may thus be defined as a security that invests directly in real estate through mortgages or properties. REITs in most countries are not allowed to get into development. They can be listed or unlisted as investors exchange shares in the Fund.
Mutual Funds
A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.
