Definition of Captive Funds
The term Captive Funds refers to a private equity or venture capital firm owned by a larger financial entity, such as a commercial bank.
Captive funds make investments exclusively on behalf of a parent company.
Captive funds associated with public companies may find that their charter changes as a result of input from investors. In contrast, independent funds, with a more diversified investor base, may be better able to control their own destiny.
Captive funds that provide investment to firms that use other services from the parent may find themselves in conflicts of interest in certain situations. For example, a bank that lends a startup money and provides equity funds will have conflicting interests in the event of a bankruptcy or workout situation.