Fund Company: What it is, How it Works, Biggest Mutual Funds

What Is a Fund Company?

"Fund company" is a term used to describe an investment company, which is a corporation or trust involved in investing the pooled capital of investors in financial securities. This is usually done through a closed-end fund or an open-end fund (conventional mutual fund). Fund companies can also offer ETFs, separate accounts, and CITs. In the U.S., most fund companies are registered and regulated by the Securities and Exchange Commission under the Investment Company Act of 1940.

Key Takeaways

• A fund company is a financial firm primarily focused on investing in securities; it does so by investing the pooled capital of investors.
• Fund companies offer closed-end or open-end funds, as well as ETFs, separate accounts, and CITs.
• Most funds are regulated by the U.S. Securities and Exchange Commission and must be registered according to the Investment Company Act of 1940.
• Fund companies employ teams of portfolio managers, analysts, and other personnel to help manage the investment options offered by the firm.

Understanding Fund Companies

Fund companies are business entities, privately and publicly owned, that manage, sell, and market closed-end and open-end funds to the public. They typically offer a variety of funds to investors, including portfolio management and occasionally custodial services. Not all fund companies custody their own assets. They may work with another institution that custodies the assets and communicate performance value to the custodian after the fund company’s fund accountants have struck the net asset value (NAV) for each of the mutual funds at the close of each day.

How Fund Companies Work

Fund companies employ teams of portfolio managers, analysts, fund accountants, compliance and risk monitoring personnel, and many other individuals in charge of managing the investment strategies offered by the fund company. The strategies might be active or passive. An active strategy involves picking and investing in specific stocks expected to outperform the overall market. A passive strategy purchases a pre-set basket of stocks that are part of an index or a sector, such as the S&P 500 Index or the Health Care sector.

Vanguard and Fidelity are two of the biggest mutual fund companies in the world.

Biggest Mutual Funds by Assets Under Management (AUM)

• BlackRock, $9 trillion
• Vanguard, $7.2 trillion
• Charles Schwab, $7.07 trillion
• Fidelity Investments, $3.8 trillion
• State Street Global Advisors, $3.5 trillion
• PIMCO/Allianz, $2.89 trillion
• JP Morgan, $2.8 trillion
• Capital Group, $2.3 trillion
• BNY Mellon (Dreyfus), $2.2 trillion
• Amundi Asset Management, $1.9 trillion