August 2012, Eileen Appelbaum, Rosemary Batt, and Jae Eun Lee
Private equity firms (PE), hedge funds (HFs), sovereign wealth funds (SWFs), and other private pools of capital form part of the growing shadow banking system in the United States, where these new financial intermediaries provide an alternative investment mechanism to the traditional banking system. PE and HFs have their origins in the United States, while the first SWF was created by the Kuwaiti Government in 1953. While they have separate roots and distinct business models, these alternative investment vehicles have increasingly merged into overarching asset management funds which encompass all three alternative investments. These funds have wielded increasing power in financial and non-financial sectors – not only via direct investments but also indirectly, as their strategies – such as high use of debt to fund investments – have been increasingly adopted by investment arms of banks and by publicly-traded corporations. This paper outlines the changes in the US regulatory environment which have facilitated the rapid growth of alternative investment funds (AIFs) and then examine the specific features of these funds, including their growth, business models, and implications for firms and employees.
This is a working version, forthcoming in ‘Financialisation, New Investment Funds, and Labour: An International Comparison,’ Oxford University Press.