8.7 The role of other sources of finances: private markets Flashcards
What is an institutional investor?
A person or entity who pools money to purchase securities or other investments that provide sufficient returns and security to satisfy their stakeholders.
What are the main types of institutional investors?
- private equity
- venture capital
- pledge funds
- unit trusts
- pension funds
What is private equity finance?
Capital raised through private investors rather than being publically traded. e.g. wealthy individuals, university endowments etc.
What is meant by “business angels”?
Wealthy investors who provide their personal wealth to start up an early-stage business in return for a share of the companies’ equity.
What is venture capital?
A method of financing via high net worth individuals looking at diverse investment opportunities.
What is a pledge fund?
A form of private equity investment which allows investors to provide capital on a deal-by-deal basis (rather than following a majority decision like in a traditional private equity fund).
What is a unit trust?
A form of collective investment which is bought in units to allow small investors to hold a diversified portfolio of investments.
What is the Enterprise Investment Scheme (EIS)?
A business expansion scheme launched in the UK in 1994 to encourage investment in small unquoted companies. It offers tax relief up to a maximum investment f £1 million annually.
Why is the Enterprise Investment Scheme necessary?
Investment in small, untested companies can be risky, and so the EIS provides additional incentive to do so.
What is a pension fund?
A fund into which pensions are paid, also known as a superannuation fund.
What are the 4 main types of bank?
1 Retail bank
2 Commercial bank
3 Investment bank
4 Central bank
What is the focus of retail banks?
General public/consumers by operating multiple branch locations. e.g. current/savings accounts, credit cards, mortgages etc.
What is the focus of Commercial Banks?
Business customers, including offering accounts and business loans.
What is the focus of investment banks?
Helping business to look to expand by issuing stocks of bonds to investors in financial markets, and helping with IPOs. e.g. JP Morgan.
What is the focus of Central Banks (aka Reserve Banks)?
Managing the monetary system of the government such as state’s currency, money supply and interest rates. e.g. Bank of England.
