Table of Сontents
- What Is an Institutional Investor?
- Institutional Investor vs. Retail Investor
- Institutional Investor Organizations
- Advantages Of Institutional Investors
- Disadvantages Of Institutional Investors
- Impact Of Institutional Investors on the Market
- Bottom Line
Large investors who trade on behalf of other people are known as institutional investors. Institutional investors have a significant impact on market pricing because of the size of their holdings.
What Is an Institutional Investor?
A professional that trades substantial amounts of securities on behalf of a business, group, fund, or other people is known as an institutional investor.
A retail investor, in contrast, is a non-professional who trades for their own gain. A retail investor can trade actively or passively, employ a full-service or bargain broker, or seek advice from a financial expert.
Institutional Investor vs. Retail Investor
According to a Gallup Organization study conducted in May 2022, 58 percent of Americans hold stock, which is somewhat more than the 56 percent and 55 percent who did so in 2021 and 2020, respectively. The following characteristics set retail investors apart from institutional investors:
Investing Institution
Consumer Investor
Exchange currency on behalf of others
Trading with their own funds
must have assets of more than $50 million, according to FINRA.
There is no minimum investment amount.
To earn a living, invest
Investing to meet objectives like retirement
Stock prices can be affected by purchases or sells.
likely lacks the power to influence markets
Institutional Investor Organizations
Institutional investors manage the assets of:
- Mutual funds
- Pension funds
- Hedge funds
- Endowment funds
- Banks
- Insurance companies.
Institutional investors might charge flat fees to their customers or charge fees based on the value of the assets they are managing. The top institutional investors are listed here, ordered by the value of the assets they manage, or AUM. The top 10 institutional investors collectively have more than $40 trillion.
1. BlackRock
headquartered in New York City, New York, and having an AUM of over $9.464 trillion. With more than 80 locations worldwide, BlackRock manages the assets of businesses, institutions, governments, and private people. As of March 31, 2022, BlackRock’s market capitalization as a publicly listed business was $117 billion. Through its iShares products, BlackRock invested more than a quarter of its AUM in ETFs in 2021.
2. Vanguard Group
has $8.4 trillion under administration and is headquartered in Malvern, Pennsylvania, in the United States. Vanguard, in contrast to BlackRock, is a privately held company with 20 locations globally. The world’s largest producer of mutual funds, Vanguard is also the second-largest provider of exchange-traded funds. Many of its mutual funds have low-cost ratios. More than 30 million people invest in Vanguard globally today.
3. UBS Group AG
UBS, which has offices in Basel and Zurich, Switzerland, has $4.5 trillion under management. Customers in the corporate, institutional, and retail sectors can purchase its goods and services. UBS is a publicly listed company with a $55 billion market value that trades on the Swiss Stock Exchange and the New York Stock Exchange.
4. Fidelity Investments
State Street has a $4.14 trillion AUM and a primary office in Boston, Massachusetts. The company serves foundations, endowments, governments, companies, and financial advisers and provides services for over 140 exchange-traded funds, including the largest ETF in the US. It also offers ETFs in Australia, Hong Kong, and Singapore.
5. State Street Global Advisors Inc.
State Street has a main office in Boston, Massachusetts, and a $4.14 trillion AUM. The firm offers approximately 140 exchange-traded funds, including the biggest ETF in the United States, and offers services to foundations, endowments, governments, corporations, and financial advisers. In Australia, Hong Kong, and Singapore, it also provides ETFs.
6. Morgan Stanley
Morgan Stanley has its main office in New York City, NY, and its AUM is $3.274 trillion. With locations in 39 nations, Morgan Stanley bought the investment platform E*TRADE in late 2020.
7. JPMorgan Chase & Co.
JPMorgan Chase is a publicly listed company on the NYSE that has its headquarters in New York City, NY, with an AUM of $2.996 trillion. JPM is known by the ticker JPM. Corporations, governments, banks, brokers, and insurance firms may all make use of its goods and services. With over $1.36 trillion in credit and debit card sales, JPMorgan is the largest credit card provider in the United States.
Advantages Of Institutional Investors
The following benefits accrue to institutional investors over their retail counterparts:
-
- Access to securities: Securities that are not accessible to individual investors may be offered to institutional investors. An initial public offering, for instance, could only be accessible to institutional investors who fulfill specific requirements.
- Access to information: They could have access to information that is not readily available to retail investors, including as research, statistics, and analysis.
Disadvantages Of Institutional Investors
In the following domains, institutional investors are at a disadvantage against regular investors:
-
- Unable to play the long game: While retail investors are able to disregard short-term market fluctuations, institutional clients might anticipate results every quarter or year, requiring institutional investors to trade more often.
- Unable to invest in smaller companies: Retail investors can participate in businesses of any size, but institutional investors may be unable to do so since they have such substantial sums of money to spend. This is because any purchases or sells will cause share values to go upward or downward.
- Diversification: Regular investors do not need to do this, but institutional investors typically do. Diversification can lower risk without reducing returns, but a concentrated investment in a few high-risk companies has the potential to significantly exceed the market.
- Liquidity: While institutional investors may be constrained by laws or agreements because of their trades’ greater impact on market sentiment, retail investors can sell stocks and bonds swiftly..
- Taxes: Retail investors are only required to declare their capital gains if they sell their investment at a profit, but institutional investors must record significantly more capital gains.
Impact Of Institutional Investors on the Market
The Russell 3000 index, the most significant U.S. stock index, accounts for about 90% of daily trading volume, according to 2021 research by Morgan Stanley (reuters.com). Institutional investors have a significant influence on the markets for the majority of asset classes since they own such a sizable part of all financial assets in the United States, and throughout time, this power has only been stronger.
According to a 2017 survey published on pionline.com, institutional investors held around 78 percent of the Russell 3000 index’s market value and 80 percent of the large-cap S&P 500 index. These investments are thought to be worth $21.7 trillion and $18 trillion, respectively, in dollars. Among the many assets that institutional investors invest in, the bulk are.
Bottom Line
Markets are significantly influenced by institutional investors, who control more than 75% of the market value of the largest equity index and 90% of its daily trading activity. Retail investors have demonstrated that they can compete head-to-head with institutional investors when they come together, and they can observe the actions of institutional investors for indicators of future market changes.
