The investment industry serves society by matching those who supply capital, ormoney, with those who seek capital to finance, or fund, their activities. For simplicity, let us refer to those who supply capital as investors and those who seek capital as borrowers. Borrowers may seek capital to achieve long-term goals, such as building or upgrading factories, schools, bridges, highways, airports, railroads, or other facilities. They may also seek short-term capital to fund short-term goals and/or support their daily operations. Borrowers seeking capital to meet short- and long-term objectives include sovereign entities, businesses, schools, hospitals, companies, and other organizations that serve others. Some borrowers will turn to banks or other lending institutions to finance their activities; others will turn to the financial markets to access the funds they need to achieve their goals.
In exchange for supplying capital to fund the borrowers’ endeavors, investors expectthat their investments will generate returns that compensate them for the use of their funds and the risks involved. Before providing capital, diligent and disciplined investors will evaluate the risks and rewards of providing the capital. Some risks, such as a downturn in the economy or a new competitor, could adversely affect the returns expected from the investment. To help evaluate the potential risks and rewards of the
investment, investors conduct research, reading and evaluating the borrower’s financial statements, management’s business plan, research reports, industry reports, and competitive analyses.
Responsible investors will not invest their capital unless they trust that their capital will be used in the
way that has been described and is likely to generate the returns they desire. Investors and society benefit when capital flows to borrowers that can create the most value from the capital through their products
and services.