Do Not Fret Over Fund Exposure to Startups


Mutual Fund

More mutual fund money is flowing into tech startups, but investors shouldn’t fret about their exposure to the often-volatile private ventures, a finance professor said on Wednesday.

“The vast majority of equity mutual funds are investing exclusively in publicly traded stocks. It’s mainly growth funds — and even there, a minority of growth funds — that are investing in private companies,” said Jay Ritter, professor of finance at the University of Florida, on CNBC’s “Power Lunch.”

A group of five large mutual fund families—including T. Rowe Price and Wellington Management—broadly increased their investments in venture capital-backed tech companies last year, according to CB Insights. Businesses getting capital from mutual funds include ride-sharing service Uber and room rental platform Airbnb.

Prominent investors have recently warned about the risks posed by the funding flowing into tech startups. For instance, Uber was recently valued at $40 billion, while photo-sharing app Snapchat and others have jumped past the $10 billion valuation mark.

But mutual fund exposure has not reached a level that should trouble the average investor, Ritter said.

“I’m not especially worried about it,” he said.

Private ventures account for less than 1 percent of equity mutual fund assets, Ritter said. Additionally, the funds cannot invest more than 15 percent of their assets in illiquid securities like startups.


Reprinted by permission.

Image credit: CC by Simon Cunningham

About the author: Jacob Pramuk

Jacob Pramuk is a web intern at CNBC.

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