Financial Intermediaries in the United States: Development and Impact on Firms and Employment Relations
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[Excerpt] Private equity (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 USA, 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. In this chapter we outline the changes in the US regulatory environment which have facilitated the rapid growth of alternative or new investment funds (AIFs or NIFs) and then examine the specific features of these funds, including their growth, business models, and implications for firms and employees.