While institutional investment isn’t for everybody, this continues to dominate the wider financial market in the UK.
This is borne out by the numbers, with an estimated 80% of institutional investors owning approximately 80% of equity market capitalisation across the board.
Interestingly, it’s thought that up to 57% of the institutional client investment market was committed to corporate pensions in 2019, while a further 12% invested in third-party insurance assets.
But what exactly is corporate investment, and how can you get started when looking to invest in this marketplace?
What is Institutional Investment?
In simple terms, institutional investors are organisations that pool together funds on behalf of others and invest them in a diverse range of financial instruments and asset classes.
As we’ve already touched on, such assets include corporate pensions and third-party insurance, although there are other popular options like mutual funds, ETFs, investment banks and hedge funds.
Typically, it’s large market actors like banks and insurance companies that operate as institutional investors, while unlike their retained contemporaries, they tend to have a significant influence on the market and the firms that they back.
In terms of the latter, it’s certainly fair to say that institutional investors control a large amount of all financial assets in markets such as the US, with the respective level of influence having grown in accordance with this.
Remember, institutional investors own an estimated 80% of equity market capitalisation across the globe, with this representing a huge share of an entity with a total valuation in excess of $88.5 trillion at the end of 2017.
What are the Benefits of Institutional Investment?
There are numerous advantages to this type of investment, with institutional operators widely considered to be more proficient at committing their capital due to their professional nature and resource base.
This type of advantage remains despite the rise of online trading platforms and the greater accessibility of the world’s financial markets in 2021, which is why so many organisations participate in this endeavor.
Of course, institutional investment also tends to provide natural diversification, not least because funds are usually pooled and distributed across a diverse range of assets or instruments.
Through institutional investment, it’s also possible to target highly lucrative asset classes such as pension funds, which represents the largest sector in this marketplace.
As of early 2018, pension funds controlled more than $41 trillion in total assets, while in the best case scenario they deliver reliable and consistent returns over an extended period of time.
How to Get Started as an Institutional Investor
The best, and indeed only, way to get started as an institutional investor is to partner with a viable organisation or asset manager, such as Downing.
This company offers access to a huge institutional portfolio, and one that has more than £1 billion of assets invested across a wide array of marketplaces.
Aside from pensions and insurance, healthcare is another popular niche for institutional investors. Of course, interest in this space piqued further following the impact of the coronavirus in 2020, as healthcare and medical device stocks soared in line with demand.
Energy and infrastructure also represents a viable option, with renewable energy particularly popular as this continues to outstrip fossil fuels and claim an ever-increasing market share.
This is also a niche to watch ever closely through 2021 and beyond, as fossil fuel sources continue to be depleted and face potential eradication by the year 2060.