Pooled Investments

The whole unit on one sheet: the five vehicle types, how each is priced and traded, who can invest, and the distinctions the exam loves to test.

Which One-Liners Win Points?

• A closed fund (open-end fund that stopped taking new investors) is NOT a closed-end fund.
• Closed-end funds can use leverage; open-end funds generally cannot.
• Accredited investor and qualified purchaser are two distinct, separate standards. Never assume a private fund must satisfy both at once; which one applies follows from the exclusion and exemption the fund relies on.
• The distribution requirement applies to ALL REITs, both exchange-listed and non-traded.

Which Numbers Matter Most?

How Do Open-End and Closed-End Funds Differ?

• Open-end: continuous offering, priced once daily at NAV, forward pricing, bought from and redeemed with the fund company, highly liquid, always at NAV (no premium or discount).
• NAV = (Total Assets minus Total Liabilities) divided by Shares Outstanding.
• Closed-end: fixed shares via initial public offering (IPO), trades on an exchange intraday at a market price set by supply and demand (premium above NAV, discount below NAV), may use leverage, less liquid.

Who Can Invest in a Private Fund?

• Not registered under the Investment Company Act; not broadly offered to the public (eligibility turns on the fund's exclusion and exemption); less oversight, less liquid.
• Hedge funds: aggressive strategies (short selling, leverage, derivatives, concentrated positions); limited partnership structure; "2 and 20" fee with a high-water mark; lock-up periods restrict redemptions.
• Private equity: buys, improves, and sells companies; capital calls draw committed capital over time; "2 and 20" often on committed capital with a hurdle rate; very illiquid.
• Venture capital: subset of private equity in early-stage startups; very high risk; managers often take board seats.
• Gotcha: capital calls (private equity, venture capital) commit money drawn over time; lock-up periods (hedge funds) bar withdrawing invested money for a set period.

What Makes a Unit Investment Trust Different?

• Fixed portfolio of stocks OR bonds selected once and held; not actively managed; full transparency at purchase; lower fees.
• Units are redeemable at NAV, but "not actively managed" still lets the trustee sell a seriously impaired security.

How Does an Exchange-Traded Fund Stay Near Net Asset Value?

• Intraday trading at market prices; mostly passive index tracking (but actively managed ETFs exist); lower expense ratios; can be sold short, bought on margin, and traded with limit and stop orders.
• Authorized participants (APs) are institutional broker-dealers (not individuals) who create shares by delivering a basket of underlying securities for a creation unit, and redeem in reverse.
• Arbitrage by APs keeps market price near NAV; redemptions are typically in-kind, largely avoiding forced selling, so ETFs pass through fewer capital gains than mutual funds.

What Must a Real Estate Investment Trust Distribute?

• Owns, operates, or finances income-producing real estate; must distribute at least 90% of taxable income as dividends; dividends generally taxed as ordinary income (not the lower qualified rate).
• Exchange-listed: trades on major exchanges, liquid, transparent real-time pricing, subject to stock-market volatility.
• Non-traded: registered with the Securities and Exchange Commission (SEC) but not listed; illiquid, hard to value, high upfront fees, limited or no redemption, and distributions may come from offering proceeds or borrowings rather than real estate income.
• Gotcha: "registered" does not mean "listed"; limited liquidity plus high commissions signals a non-traded REIT.

Which Gotchas Trip Students Up?

• A premium or discount to NAV rules out an open-end fund (always priced at NAV); it can describe a closed-end fund (driven by supply and demand) or, to a much smaller degree, an ETF (kept narrow by authorized-participant arbitrage).
• UITs redeem at NAV yet are not open-end funds; the fixed portfolio and termination date are the tell.
• ETFs are tax-efficient because of in-kind creation and redemption, not because they track an index (an index mutual fund still uses cash redemptions).
• A non-traded REIT's high distribution is not a good sign on its own; it may be paid from investor capital, not property income.

One-Breath Recap

Open-end mutual funds price once daily at Net Asset Value with forward pricing and always trade there, while closed-end funds issue fixed shares and trade on an exchange at a premium or discount. Private funds (hedge, private equity, venture capital) are not broadly offered to the public; eligibility depends on the fund's investment-company exclusion and offering exemption, not one fixed test, fees often run 2 and 20, and lock-ups or capital calls keep them illiquid. Unit Investment Trusts hold a fixed portfolio to a termination date and redeem at Net Asset Value without active management; Exchange-Traded Funds trade intraday near Net Asset Value. Real Estate Investment Trusts distribute at least 90% of taxable income, generally as ordinary income; non-traded ones add illiquidity, high fees, and distributions that can come from investor capital.

Need more than the recap? Read the full Pooled Investments unit.