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Institutional investors are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets. They can also include operating companies which decide to invest its profits to some degree in these types of assets. Types of typical investors include banks, insurance companies, retirement or pension funds, hedge funds, investment advisors and mutual funds. Their role in the economy is to act as highly specialized investors on behalf of others. For instance, an ordinary person will have a pension from his employer. The employer gives that person's pension contributions to a fund. The fund will buy shares in a company, or some other financial product. Funds are useful because they will hold a broad portfolio of investments in many companies. This spreads risk, so if one company fails, it will be only a small part of the whole fund's investment. Institutional investors will have a lot of influence in the management of corporations because they will be entitled to exercise the voting rights in a company. They can actively engage in corporate governance. Furthermore, because institutional investors have the freedom to buy and sell shares, they can play a large part in which companies stay solvent, and which go under. Influencing the conduct of listed companies, and providing them with capital are all part of the job of investment management.

Contents 1 Overview 2 Institutional investor types 3 Role in the globalization of financial markets 4 Regional 4.1 Canada 4.2 United Kingdom 5 Bibliography 6 See also 7 References 8 External links

Overview

Because of their sophistication, institutional investors may often participate in private placements of securities, in which certain aspects of the securities laws may be inapplicable. For example, in the United States, a private placement under Rule 506 of Regulation D may be made to an "accredited investor" without registering the offering of securities with the Securities and Exchange Commission. In essence institutional investor, an accredited investor is defined in the rule as:

• a bank, insurance company, registered investment company (generally speaking, a mutual fund), business development company, or small business investment company;
• an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
• a charitable organization, corporation, or partnership with assets exceeding $5 million;
• a director, executive officer, or general partner of the company selling the securities;
• a business in which all the equity owners are accredited investors;
• a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
• a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
• a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

Institutional investor types

• Pension fund
• Mutual fund
• Investment trust
• Unit trust and Unit Investment Trust
• Investment banking
• Hedge fund

Role in the globalization of financial markets

Institutional investors have played a major role in the emergence of truly global money flows, notably through their large-scale cross-border investments, channelling the excess liquidities of pension funds of G8 and OPEC countries towards both Western bourses and emerging markets, contributing to the development of a truly integrated and thus more efficient global financial sphere.^[1]

When considered from a strictly local standpoint, institutional investors are sometimes called foreign institutional investors (FIIs). This expression is mostly used in emerging markets such as Malaysia and India.^{[citation needed]}

In countries like India, statutory agencies like SEBI have prescribed norms to register FIIs and also to regulate such investments flowing in through FIIs. In 2008, FIIs represented the largest institution investment category, with an estimated US$ 751.14 billion.^[2]

Since the mid-1970s, it has been argued that geographic diversification would generate superior risk-adjusted returns for long-term global investors by reducing overall portfolio risk while capturing some of the higher rates of returns offered by the emerging markets of Asia and Latin America.^[3]

Regional

In various countries different types of institutional investors may be more important. In oil-exporting countries sovereign wealth funds are very important, while in developed countries, pension funds may be more important.

Canada

In Canada, both pension funds and government funds are powerful investors in the market with hundreds of billions of dollars in assets in an economy of only around one trillion dollars- some think-tanks such as the CEE Council have argued that this constitutes a long-term competitive advantage for the Canadian economy. The most important Canadian institutional investors are:

• Caisse de dépôt et placement du Québec (C$237.3 billion [2007])
• Canada Pension Plan (C$116.6 Billion [2007])
• Ontario Teachers' Pension Plan (C$106 billion [2006])
• British Columbia Investment Management (C$83.4 billion [2007])
• Alberta Investment Management (C$73.3 billion [2007])

United Kingdom

In the UK, institutional investors may play a major role in economic affairs, and are highly concentrated in the City of London's square mile. Their wealth accounts for around two thirds of the equity in public listed companies. For any given company, the largest 25 investors would have be able to muster over half of the votes.^[4]

The major investor associations are:

• Investment Management Association^[5]
• Association of British Insurers
• National Association of Pension Funds
• The Association of Investment Trust Companies

The IMA, ABI, NAPF, and AITC, plus the British Merchant Banking and Securities House Association are also represented by the Institutional Shareholder Committee.

Bibliography

• Davis, Philip et al., Institutional Investors, Cambridge, Massachusetts, The MIT Press, 2001.
• Firzli, M. Nicolas, “Asia-Pacific Funds as Diversification Tools for Institutional Investors” [in French], Revue Analyse Financière, Apr. 2009, pp. 30– 32.
• Goopty, Sudarshan et al., Portfolio Investment in Developing Countries, Washington, D.C.: World Bank Working Papers, September 1993.
• Jensen, M.C. (ed.), Studies in the Theory of Capital Markets, New York, F. Praeger Inc., 1972

See also

• Private placement
• Investment management
• Global assets under management

References

External links

• Institutional Investor Magazine

v • d • e Investment management Collective investment scheme structures Common contractual fund · Fond commun de placement · Investment trust · Unit trust · Mutual fund · ICVC · SICAV · Unit Investment Trust · Exchange-traded fund · Offshore fund · Unitised insurance fund Investment Styles Active or Passive management · Value or Growth investing · Hedge fund · Socially responsible investing · Fund of funds · Manager of managers · Index fund Theory & Terminology Efficient-market hypothesis · Net asset value · Open-end fund · Closed-end fund Related Topics List of asset management firms · Umbrella fund · UCITS

v • d • e Topics on private equity and venture capital Basic investment types Buyout • Venture • Mezzanine • Growth • Secondaries • Equity co-investment History History of private equity and venture capital • Early history of private equity • Private equity in the 1980s • Private equity in the 1990s • Private equity in the 2000s Terms and concepts Buyout Financial sponsor • Management buyout • Divisional buyout Venture Seed money • Startup company • Angel investor • Venture capital financing • Pre-money valuation • Post-money valuation • Venture round • Venture debt • Bootstrap funding Structure Private equity firms and funds • Limited partnership • Limited liability company • Carried interest  • Management fee • Publicly traded private equity (Business Development Company, Venture Capital Trust) • Private Investment in Public Equity (PIPE) • Pledge fund Investors Institutional investors • Pension funds • Insurance companies • Fund of funds • Endowments • Foundations • Investment banks • Merchant banks • Commercial banks • High net worth individuals • Family offices • Sovereign wealth funds Related financial terms Undercapitalization • Initial Public Offering (IPO) • Mergers and acquisitions • Leverage • High-yield debt • Capital structure • Capital call • EBITDA Private equity and venture capital investors • Private equity firms • Venture capital firms • Angel investors • Portfolio companies