Can mutual funds invest in private companies?

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shmoozer

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Are mutual fund companies allowed to own private companies? Specifically, Say a mutual fund owns a large voting stake in a public company & a private firm makes an attempt to acquire that public co (not a 100% pure cash offer). Are mutuals funds allowed to maintain some ownership? Is it a company by company basis?
 
Part of being a 40 Act fund is daily pricing, so it’d be hard. I don’t know of anything that expressly prohibits it, but I’m not sure how it’d work.
 
I’m sure some of them can if it’s in their investment mandate. However, most mutual funds probably don’t do this, since private company shares are generally illiquid: what do you do if a mutual fund investor wants to withdraw money?
 
Yes some funds can. T Rowe Price New Horizons is one of them that invests a small amount in private companies such as Facebook.
 
So it’s on a fund by fund basis –should this information be easily avaiable. I am assuming that if a fund does not specifically state it can hold private shares, it will not be allowed to do so.
 
It’s buried in the prospectus. I wouldn’t say it’s easy to find, but it’s there.
 
Couple more funds than invest in private companies mentioned in a WSJ story this morning, page C1…”For Funds, A Groupon Deal That Could Disappoint”
 
I believe Bruce Berkowitz has his Fairholme Funds mutual fund setup to invest in private companies, not sure the details on it though.
 
They can if they have a mandate in the prospectus that would allow for it.
FPA Crescent has a few small real estate investments that are illiquid, but it is a negligible percentage of the portfolio. It has asymmetric return potential, so it makes sense, but if he got massive redemptions it wouldnt hamper the fund.
The language in the prospectus has to be very explicit for them to do it, but the answer is yes they can.
 
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