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Katherine Whitehorn

Investment Dictionary


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Institutional Investor

 

An institutional investor is an investor that is a corporation/institution. Institutional investors have high impact to investment markets and sometimes decisions of most known institutional investment managers are used as investment guidelines. 

 

Main institutional investors:

  • Banks (including investment banks)
  • Funds (mutual funds, hedge funds, pension funds) 
  • Insurance companies  
  • Brokerage companies
  • Other corporations that invests free cash in investment markets 

Institutional investments are managed by professional investment managers and that is the advantage over retail investors. But institutional investors not necessary will achieve better results because they are limited to invest only in large cap investments and have to follow strict investment rules. 

 

However, institutional investors run the market. They usually are long term investors but have a lot of influences through the media and other channels. Because of the scale and status institutional investors usually get higher allocations during IPOs or access to newly issued shares at a lower price, and that allows for them to achieve better investment results (which are eroded by administration costs). 

 

Institutional investors hire a lot of investment professionals with different kind of degrees (including CFA and others) that in many cases are overpaid and do not create as much additional value as are creating additional costs. But this is how investment markets works when the names and statuses are very important, especially in investment banking industry.

 






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