US institutional investors boost equity assets

Despite stock market declines in the last few years, institutional investors have boosted their equity ownership control of US markets, The Conference Board reports in its “Institutional Investment Report.”

Latest data show that US institutional investors controlled US$19.634 trillion in assets in 2003, nearly matching their peak of US$19.664 trillion in 1999. That was before the market shakeout in 2000-2002, when total institutional investor assets dropped to $17.5 trillion.

“This means that, despite a brief hiatus, the economic power and clout of US institutional investors continues,” says Dr. Carolyn Kay Brancato, director of The Conference Board’s Global Corporate Governance Research Center. She adds: “These investors tend to be the most activist in demanding corporate governance reforms and will continue to have a profound impact on every company not only in the US but also in global markets, since US investors have tended to be out in front of global shareholder activism.”

Looking at the mix of institutional investors, pension funds owned 40.7% of total US equity assets in 2003, investment companies 22%, insurance companies 23.3%, bank and trust companies 11.7%, and foundations 2.4%.

Within the pension fund category, the more “activist” public employee pension funds have grown from 7.4% of total institutional investor assets in 1980 to 11.6% in 2003. Considering pension funds assets alone, these public funds controlled $196.6 billion in assets in 1980 (22.6% of total pension fund assets of $871 billion). By 2003, they held $2.27 trillion in assets (28.4% of all pension fund assets).

“This continued growth is significant because, among the categories of institutional investors, the public pension funds are the most activist and the most coordinated with other global institutional investors,” says Brancato. “Ten years ago, these funds weren’t likely to join in lawsuits, but now, having been severely burned by the Enron and WorldCom situations, these funds are asserting themselves as never before.”

Preliminary data show that investors in the ten countries with the largest institutional asset base held $32.127 trillion in assets in 2001, while US investors—with approximately $19.3 trillion in assets as estimated by the OECD—held 59.9% of the 10-country total.

Around the world, many countries are investing much more heavily in equities, shifting from bonds and loans. From 1992-1999, in the 10 countries examined, assets allocated to equities increased by 11%, while assets allocated to bonds and loans decreased.

Information on ordering the “Institutional Investment Report 2005: US and International Trends” (Report #1376) can be obtained by visiting http://www.conference-board.org/.