The different Institutions on Wall Street (Part II)

Welcome to Part II of this series about the different people on Wall Street. If you missed Part I, click here.

So let’s get going then.

Venture Capital

Venture Capital (VC) is almost like Private Equity (PE) mentioned in Part I.

VC is a form of funding for new startups. VCs will watch for new potential startups with new and revolutionary ideas, they will offer a sum of money to help develop the startup into a profit making entity. In return, the VCs will usually hold a large portion of shares in the new startup.

The difference between VC and PE is that VCs look for companies at the seed stage, the ones that have only just started and made little to no sales on their product. PEs provide funding for companies at a later stage, ones with a semi-developed product and a have made a good amount of sales thus far.

Among the largest and most successful Venture Capital include Google Ventures, Bessemer Venture Partners and Sequoia Capital. They were one of the initial funders of major US companies like AirBnB, Uber, Shopify and Slack.

Hedge Funds

A Hedge Fund is like Asset Management mentioned in Part I. But Hedge Funds pursue much higher returns, and would generally try to beat the benchmark rate of returns or beat market returns. Therefore, they take on much more risk in pursuit of much more returns.

Only accredited and wealthy individuals can invest with Hedge Funds. Hedge funds are structured as limited partnerships. The investors are limited partners while the hedge fund company is a general partner. The hedge fund pools money from its limited partners and invests it on their behalf.

Hedge Funds often use advanced strategies, including leverage, short positions, and derivatives such as options, and they can invest across a wide variety of markets, including stocks, bonds, commodities, real estate, cryptocurrency, and more. Virtually any opportunity to make money is on the table. Some of their investments are very risky and hence because of the nature of the business, most hedge funds don’t last long. They will last for about 5-6 years.

Insurance

Insurance is pretty straight forward. You pay a premium annually to the Insurance company, they take it and invest into the market and might give you small payments from their returns. In the event you meet an accident, the Insurance company reimburses the funds to you to help with your losses. It pools together thousands of people’s money, and reimburses the funds for the the small amount of people who had accidents.

Insurance doesn’t just cover health, fires and car accidents. They also cover losses on financial investments and also business activities.

Insurance offers a sort of risk management for its clients but helping them when disasters or accidents happen. Of course, usually Insurance does the mathematics to calculate the probability of certain events happening, and then offer you the price of the premium.

Some of the major insurance companies include Prudential, New York Life Group, State Farm etc. As mentioned, there are many types of insurances, hence each firm would usually specialize in certain types of risk.