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Mutual Funds Venture Into High Risk Private Stock Deals
For investors who believe that their mutual funds invest only in publicly traded companies, they are wrong, at least with funds such as Putnam Investments OTC Emerging Growth Fund, Capital Research Group's Smallcap World Fund, and other funds at companies such as Fidelity, T. Rowe Price, Alliance Capital Management, John Hancock Financial Services, Van Wagoner Capital Management and Janus.
Take the case of a hot software company start-up, Epicentric, Inc. Instead of turning to venture capitalists (with a pool of money provided by high net worth individuals and companies to invest), Epicentric's chief executive turned to mutual fund managers at Putnam and Capital Research for funding.
Fund companies are quick to point out that their ability to invest in non-public companies is disclosed in the prospectus. And there are good reasons, from the perspective of possible return, for doing so.
But investors beware. These are high - risk deals. Know the risks before investing in these funds.
Source: Investment News, July 24, 2000
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