Can a small business build an internal investment fund?
Can a small business have an internal fund? My aunt is thinking of pooling funds for a portfolio by allocating a portion of capital from her small business to buy stocks and bonds. She's thinking of hiring my son as the general partner/fund manager.
Unfortunately I don't have an answer for you. I'd recommend posting this is the off-topic forum instead of the hedge fund forum. It'll probably get more looks there.
Yes, but why? If you’re a small business owner you probably have some kind of IRR that is decent (20-30% say), whereas even professional fund managers will struggle with 6-10% returns (depends on strategy otc).
A small business doesn’t “pool” funds — it just opens a brokerage account that is owned by the business. This happens all the time and is typically managed by a firms internal treasury team (mainly comprised of running bond ladders to match cash flow expenditures or future projects). A business that has future use of capital typically does not have the time horizon for equity or alternative investments unless this is for a purpose similar to a pension. There are some tax benefits that a business can utilize to make pension savings more affordable on the business side vs personal.
The idea seems interestingly novel to me. I have read about big businesses building internal funds (The Daily Journal, Airbnb) but not small businesses/sole proprietorships or even LLCs.
It sounds a little WeWork-ish to me. A few years ago on WSO we were discussing WeWork (while it was still the beloved unicorn of Wall Street). I, being right about 99% of things and dayum humble about it, too, was pointing out that WeWork's foray into VC, residential real estate, wave pools, etc. was an indication that something was amiss with the company's underlying business model. Just sayin'...
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