Definition - What does Pledge Fund mean?
A pledge fund is a type of private equity investment wherein each investor contributes a sum of money toward a specific, predetermined goal. It is similar to other forms of pooled investments, except that each backer has the option to make funds available on a deal-to-deal basis.
Divestopedia explains Pledge Fund
A pledge fund is similar to traditional funding in that investors pool their resources. However, in a traditional pooled fund, investors release their capital to a fund manager. This person then uses the money to maximize returns as per his or her discretion. The difference between the two types lies in the fact that pledge fund contributors have a much greater amount of control over how their investment is spent. With this kind of funding, a contributor has the ability to select which individual part of the project they wish to support with their capital. Once the backer has chosen a specific operation that he or she wishes to financially support, a schedule and an estimated cost are determined. Once specified parameters are set, the investor will provide the funding to cover the costs of the projected assignment.
This system minimizes the capital risk for the investing partners while they continue to reap the rewards of a pooled investment. However, caution is still encouraged for potential backers who are considering committing to a pledge fund.
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