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Private Funding

Private funded refers to the source of the money for the project, business or endeavor. If the money is raised through donations, the money comes from the private sector or funds. If the government provides financial support for a specific project, the money comes from taxpayer contributions or public funds.

Why Funds Stay Private

A private investment fund may choose to stay private for a number of reasons. As mentioned, the regulations around private investment funds are much looser than for public funds. Private investment funds enjoy more freedom in how they handle everything from reporting to redemptions. This allows private investment funds to look at illiquid investments that a public fund would shun due to the difficulties of regular valuation and liquidation in the case of rising redemptions. Many hedge funds are private investment funds so they can continue to use aggressive trading strategies that the manager of a public fund would avoid due to the potential for investor lawsuits resulting from unreasonable risk-taking. Most importantly, there is no public reporting of positions for private investment funds, which allows them to avoid tipping their hand to the market and eroding the profitability of a stealthily built position.

In addition to investment flexibility, private investment funds can be vehicles of choice for handling significant family wealth. Extremely wealthy families can create private investment funds to invest the wealth with the family members as shareholders. Often a company serves as the initial structure for this arrangement, and it is repurposed to create a capital investment arm from the profits of the business. In this case, the family doesn’t want or need outside capital, so there is no incentive to take the fund public.

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