Asian Development Bank

The role of funds in capital markets

Investment funds are now an established method for making investments in both advanced and developing capital markets. In recent years, the sector has grown rapidly. Funds play an important role in mobilizing global and domestic capital flows, providing an efficient way for many investors to reach many firms.

ADB sees demand for new investment funds from Developing Member Countries in need of long-term investment capital. Our involvement provides risk capital, additional expertise, a stamp of approval, and perceived political comfort to the other investors.

Intrinsic Advantages of Funds

Investment funds are financial vehicles for managing the pooled capital of more than one investor. The investors select funds with specific objectives and policies, and cede significant control over investment decisions to professional fund managers.

The benefits of funds are far-reaching.

• Investors can buy a wider range of securities.
• Investors can easily diversify and tailor their holdings.
• Companies get long-term capital benefit.
• Specialized funds offer advice and expertise to companies they invest in.
• Funds mobilize global and domestic capital flows.
• Funds are generally cost-effective with costs spread over many investments.

The concept of a fund is highly flexible. Funds can be designed to achieve a wide range of investment objectives and trade-offs between risk and reward.

The fund sector is growing

• Market liberalization has encouraged increased investor confidence.
• Pension funds and life insurance companies are big investors in funds.
• Privatization has increased the supply of assets.