Institutional Investors

Abstract

This article provides a framework for analysing the character and degree of ownership engagement by institutional investors. It argues that the general term "institutional investor" in itself doesn't say very much about the quality or degree of ownership engagement. It is therefore an evasive "shorthand" for policy discussions about ownership engagement. The reason is that there are large differences in ownership engagement between different categories of institutional investors. There are also differences in ownership engagement within the same category of institutional investors such as hedge funds, investment funds, etc. These differences arise from the fact that the degree of ownership engagement is determined by a number of different features and choices that together make up the institutional investor's "business model". When ownership engagement is not a central part of the business model, public policies and voluntary standards aiming to improve the quality of ownership engagement among institutional investors are likely to have limited effect. Based on an empirical overview of the relative size of different categories of institutional investors, the article identifies a set of 7 features and 19 choices that in different combinations define the institutional investor's business model. These features and choices are then used to establish a taxonomy for identifying different degrees of ownership engagement ranging from "no engagement" to "inside engagement".

Institutional Investors' Trading in Speculation: Evidence from China

“…A number of literature examining the behaviour of institutional investors are available. Ramadorai () provides a detailed survey on extensive empirical studies on institutional behaviour (mostly on the investment performance of institutional investors). Although efficient market hypothesis (EMH) posits that institutional investors possess superior information over individuals and push prices towards fundamental values as a correcting force in financial markets, Jensen () systematically employs a methodology to assess the performance of investment managers for the first time and finds that mutual funds have an average alpha of negative 40 basis points.…”

“…A number of literature examining the behaviour of institutional investors are available. Ramadorai (2010) provides a detailed survey on extensive empirical studies on institutional behaviour (mostly on the investment performance of institutional investors).…”

Shareholder activism in the UK: types of activists, forms of activism, and their impact on a target’s performance

“…A growing number of studies in economics, business strategy and corporate finance research are focused on the governance roles of large-block holders in general, and institutional investors in particular, in large, publicly traded firms (see Cunat, Gine and Guadalupe, 2012;Ramadorai, 2010, for recent reviews). This research suggests that large-block outside ownership may be an effective counter-balance to managerial opportunism.…”

Overcoming Challenges to Long-Term Financing

“…Institutional investors (endowment, hedge and mutual funds, insurance companies, investment banks, pension funds, SWFs, etc.) are the best candidates for keeping markets efficient because they have the ability, knowledge and capital required to move markets but yet in many situations institutional investors have incentives to "ride" rather than trade against mispricings (Ramadorai, 2010). They do not even attempt to arbitrage apparent market inefficiencies in the process of making returns for their investors.…”