Pledge Fund
Categories: Managed Funds
Run a fraternity or sorority, and a pledge fund might represent a scam you use to trick incoming freshmen into giving you whatever cash they have in their pockets. But on Wall Street, the term refers to a way of pooling resources for investment, especially to use for venture capital.
In a typical investment fund, you give your share of the money to a general fund. Then the general fund picks investments to put cash into. You didn't have a say on the individual choices. Once you handed over your share, it was up to the group, or the fund manager to make the specific choices.
In a pledge fund, you don't give up individual autonomy. You can decide on a deal-by-deal basis whether you want to participate.
You commit $2 million to a pledge fund. The fund gets an opportunity to invest in an ostrich stud farm. You think the situation seems a little dodgy (you think emus are a much better investment), so you pass on the ostrich situation (great name for a band, btw). If it had been a typical investment fund, you could have been outvoted, and your $2 million could have gone into the ostrich studs, even though you were personally opposed.
