Captive Fund - Explained
What is a Captive Fund?
Written by Jason Gordon
Updated at April 17th, 2022
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Table of Contents
What is a Captive Fund?How Does a Captive Fund Work?Employee FundsVenture Capital Captive FundsWhat is a Captive Fund?
A captive fund is a type of investment created specifically for workers in a company. And this type of investment can also be created by companies as an investment to fund other investments or startup companies or small businesses that are believed to have growth potential.
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How Does a Captive Fund Work?
Capital fund is created as a means of investment for the workers of a company or an organization. A good example is the Medallion Fund for Renaissance Technologies workers. Capital fund is created for reasons that can be compared to publicly traded funds, but the capital fund can not be traded openly or even on exchanges. This fund is also used by investors to finance startup companies that are believed to have growth potential.
Employee Funds
Capital fund is a non-registered private fund with a liberal structure and investment goals. The captive fund is controlled internally by an assigned arm of the company or an assigned institutional investment manager. The fund is aimed at providing a worker with a wide range of opportunities at the company. This fund is quite similar to Z share funds, Z share allows workers to invest in a single share class of mutual funds. Renaissance Technologies invested in Medallion Fund founded by James Simmons for its workers. The company has about 290 employees with $84billion in an asset with the Medallion Fund and other funds such as the Institutional Equities Fund and Institutional Diversified Alpha Fund. The medallion fund is known for its quantitative investing strategy and achievement in keeping trusted records for returns.
Venture Capital Captive Funds
Venture Capital fund has different structures, however, it provides an opportunity to partner and also invest in small businesses. It is always funded by corporate capital. Google Ventures are quite interested in investing in technology companies that have growth potential. They manage Alphabet inc captive fund which is their parent company. There are different healthcare companies that are investing in venture capital through their captive funds. Examples are Eli Lilly and Company, Takeda Pharmaceutical Company, Biogen and Ascension Health. The health sector is known for its involvement in venture capital funding.