What is an Investment Trust Company?

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  • Written By: Andrew Burger
  • Edited By: R. Halprin
  • Last Modified Date: 19 August 2019
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An investment trust company, or investment company, is a type of business organization that invests pooled shareholder capital in financial securities, such as stocks and bonds, or physical assets, such as commercial and residential real estate or commodities. Investment trust companies are established and managed according to rules set out in legislative acts of the national governments of countries in which they are registered. In the U.S., the Investment Company Act of 1940 defines and divides regulation of investment trust companies into three categories: Face-amount certificate companies; Unit Investment Trusts, and Management Companies, which includes mutual funds. Investment trust companies enjoy preferential tax treatment because of their central role in the capital formation and investment process, but they are also generally required to periodically distribute the large majority of their investment income to shareholders.

Typically managed by a board of non-executive directors, investment trust companies are in the business of establishing various types of investment funds, open-end mutual funds, exchange-traded funds (ETFs), and real estate investment trusts (REITs). The ability to employ various financing and investment techniques and strategies varies. Some can employ leverage by issuing debt securities while others are prohibited from doing so. Open-end mutual funds issue new shares as new investors contribute capital while the number of shares of closed-end funds remains fixed.


Shares in investment trust company funds are publicly or privately marketed and sold to investors. They are often listed and traded on stock exchanges. Shares can then be bought and sold in these secondary markets either at a discount or premium to the actual value of the fund’s investment portfolio minus management fees and expenses. This is known as the fund’s net asset value (NAV).

The boards of investment trust companies select, and may directly employ, professional fund or portfolio managers to manage the company’s funds. The board and fund managers are compensated in any of a variety of ways as is spelled out in the fund’s charter. Common forms of compensation include receiving a percentage of net assets invested in the funds, a percentage of investment returns, or some combination thereof. Investment trust company funds also typically provide fund investors with clearing, settlement, and other administrative services, for which they also charge a fee.

In the U.S., investment trust companies are regulated by the Securities and Exchange as set out by the Investment Company Act of 1940. This statute was updated with passage of the Dodd-Frank Act of 2010. These laws apply to almost, but not all, types of investment companies. Hedge funds and private equity funds, for example, are exempt from coverage and regulatory oversight.


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