What is an investment management company?
A management investment company is a type of investment company that manages publicly issued fund units.
Management investment companies can manage both open and closed funds.
Understanding management investment companies
An investment management company manages the capital of its clients through mutual funds. US investment market law has classified investment firms into three categories under the Investment Company Act of 1940. Section four of the 1940 Act breaks down the classification of firms as follows:
- Face value certificate company
- Mutual fund
- Management company (investment)
Key points to remember
- A management investment company is a type of investment company that manages publicly issued fund units.
- Management investment companies can manage both open and closed funds.
- Open-ended funds do not have a designated number of shares available for trading; closed-end funds offer a specific number of shares to the market.
Article five of the 1940 law provides more details on management investment companies. Management investment companies can be companies with variable capital or variable capital. Article five of the 1940 law also describes these societies as diversified and undiversified societies.
Open and Closed
Management investment companies issue units of funds from pooled investments. Investors buy shares of funds that incur sales commission fees as well as operational expenses. Fund management investment firms must comply with US securities regulations. Regulations support fair market activities, investor education and transparency.
Funds managed by management investment companies trade on a stock exchange or through management companies with variable capital and are called listed investments. Management investment firms provide investors with investments in publicly traded mutual funds in a wide range of standard and complex investment strategies.
Within the universe of management investment firms, the largest investment firms in the United States are BlackRock, Vanguard, State Street Global Advisors, Fidelity and Bank of New York Mellon Investment Management.
Investment companies with variable capital manage funds with variable capital. They can be offered as mutual funds or exchange traded funds (ETFs). Open-ended funds do not have a designated number of shares available for trading. The management investment company may issue and redeem shares of open-ended mutual funds and ETFs at its discretion.
Mutual funds with variable capital are known to offer a range of share classes. Investment companies with variable capital structure classes of shares with different fees that investors must pay when dealing with an intermediary. Open-ended mutual funds do not trade on a stock market; they are traded through the mutual fund company. Transactions are processed at the fund’s next reported net asset value, also known as the futures price.
Exchange traded funds are traded daily on the stock exchanges. Exchange traded funds may trade at a discount or a premium to their net asset value. They can also be negotiated at par. A management investment company, authorized participants actively monitor ETF prices and stock exchange trading with the ability to create and redeem shares at their discretion to manage the price of an ETF.
Closed-end investment companies manage closed-end funds. They offer a specific number of shares to the market as part of an initial public offering. SICAVs neither create nor redeem shares following the public offer. Closed-end funds trade daily on the stock exchanges. They are known to trade at a discount or premium to their net asset value.
Diversified and undiversified
In addition to discussing open-ended and open-ended management investment companies, section five of the 1940 Act also explains diversified and non-diversified management investment companies. Diversified investment firms have assets that fall under the 75-5-10 rule.
A 75-5-10 diversified management investment company will have 75% of its assets in other issuers and cash, no more than 5% of the assets in a single company and no more than 10% of the shares with rights to outstanding vote of any company. Any management investment company not falling under the 75-5-10 rule is considered an undiversified management investment company.