Mutual Fund Investments in Private Firms

Michelle Lowry, TD Bank Endowed Professor of Finance, and coauthors show that an increasing number of private companies are raising money from mutual funds.

Key Insights

• 40% of venture capital-backed companies that had an IPO in 2016 had raised money from mutual funds prior to going public.
• Companies benefit from this greater availability of capital because it enables them to stay private longer.
• Mutual funds have also benefitted: over our sample period, their returns are 67% to 161% higher on these private firm investments, compared to those on broad public market indices.
• While unicorn companies (commonly defined as companies with valuations of $1 billion or more) receive much attention, the majority of mutual funds’ private firm investments are among smaller companies.

“Mutual Fund Investments in Private Firms” by Sungjoung Kwon (Wayne State University), Michelle Lowry (Drexel University) and Yiming Qian (University of Connecticut).
Read the full paper