Institutional investor

An institutional investor is an entity which pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include banks, insurance companies, pensions, hedge funds, REITs, investment advisors, endowments, and mutual funds. Operating companies which invest excess capital in these types of assets may also be included in the term. Activist institutional investors may also influence corporate governance by exercising voting rights in their investments.

Although institutional investors appear to be more sophisticated than retail investors, it remains unclear if professional active investment managers can reliably enhance risk adjusted returns by an amount that exceeds fees and expenses of investment management.[1] Lending credence to doubts about active investors' ability to 'beat the market', passive index funds have gained traction with the rise of passive investors: the three biggest US asset managers together owned an average of 18% in the S&P 500 Index and together constituted the largest shareholder in 88% of the S&P 500 by 2015.[2] The potential of institutional investors in infrastructure markets is increasingly noted after financial crises in the early twenty-first century.[3]

Roman law ignored the concept of juristic person, yet at the time the practice of private evergetism (which dates to, at least, the 4th century BC in Greece) sometimes led to the creation of revenues-producing capital which may be interpreted as an early form of charitable institution. In some African colonies in particular, part of the city's entertainment was financed by the revenue generated by shops and baking-ovens originally offered by a wealthy benefactor.[4] In the South of Gaul, aqueducts were sometimes financed in a similar fashion.[5]

The legal principle of juristic person might have appeared with the rise of monasteries in the early centuries of Christianity. The concept then might have been adopted by the emerging Islamic law. The waqf (charitable institution) became a cornerstone of the financing of education, waterworks, welfare and even the construction of monuments.[6] Alongside some Christian monasteries[7] the waqfs created in the 10th century AD are amongst the longest standing charities in the world (see for instance the Imam Reza shrine).

Following the spread of monasteries, almhouses and other hospitals, donating sometimes large sums of money to institutions became a common practice in medieval Western Europe. In the process, over the centuries those institutions acquired sizable estates and large fortunes in bullion. Following the collapse of the agrarian revenues, many of these institution moved away from rural real estate to concentrate on bonds emitted by the local sovereign (the shift dates back to the 15th century for Venice,[8] and the 17th century for France[9] and the Dutch Republic[10]). The importance of lay and religious institutional ownership in the pre-industrial European economy cannot be overstated, they commonly possessed 10 to 30% of a given region arable land.

In the 18th century, private investors pool their resources to pursue lottery tickets and tontine shares allowing them to spread risk and become some of the earliest speculative institutions known in the West.

Following several waves of dissolution (mostly during the Reformation and the Revolutionary period) the weight of the traditional charities in the economy collapsed; by 1800, institutions solely owned 2% of the arable land in England and Wales.[11] New types of institutions emerged (banks, insurance companies), yet despite some success stories, they failed to attract a large share of the public's savings and, for instance, by 1950, they owned 48% of US equities and certainly even less in other countries.[12]

This page was last edited on 9 July 2018, at 13:24 (UTC).
Reference: under CC BY-SA license.

Related Topics

Recently Viewed