Fund Spy

Unicorn Hunting: Large-Cap Funds That Dabble in Private Companies

Katie Rushkewicz Reichart, CFA

In recent years, prominent companies such as Uber have delayed IPOs, opting to raise money in the private market and build their businesses without the pressure that comes with being publicly traded. Mutual fund managers must increasingly keep tabs on these innovative companies given they could potentially disrupt the business models of their public company holdings. Some active managers have also invested in private companies with the hope that getting in early could reap bigger rewards than waiting for an IPO.

Morningstar's inaugural research report in 2016 found that a low percentage of mutual funds overall invest in private companies, and most that did so had small stakes. Here we take a fresh look at a subset of the industry that has embraced private-company investment the most: U.S. large-cap equity funds. The study focused on funds in the large-growth, large-blend, and large-value Morningstar Categories and excluded exchange-traded funds and funds of funds. It used holdings data as of December 2017. The screening list included 174 companies that were private as of December 2017, of which 85 had mutual fund ownership by large-cap funds.

Katie Rushkewicz Reichart, CFA has a position in the following securities mentioned above: SLADX. Find out about Morningstar's editorial policies.