What is the difference between institutional and non-institutional investors?
Investment may seem like an easy enough area of finance to understand, but in reality, it’s far more complex than it can often be given credit for. While the basic view that the field essentially boils down to identifying the opportunities with the largest capacity for profit and backing them isn’t completely untrue, it is a bit of an oversimplification.
While most people can get away with that level of understanding, anyone looking to get in to the field as either an investor themselves or seeking fresh investment for their business from a third party would greatly benefit from increased knowledge of the various intricacies. While it’s been a difficult and uncertain period for business, there is still value in knowing where you stand in the event that investment becomes a concern.
As the name would suggest, this title refers to businesses whose main concern is investment. An umbrella term, individual businesses are more likely to self-identify and sell themselves more as pension funds, mutual funds, money managers, insurance companies, investment banks, commercial trusts, endowment funds, hedge funds or hedge fund investors – but in essence, they’re all forms of institutional investment.
A lot of power is places in the activity of institutional investors, and their affect on the economy can be quite pronounced, in both positive and negative ways. Given the nature of what they do, their activity is often measured and viewed with additional importance, and that can fluctuate the stock trader market as a result, as their expert status suggests that they may be aware of movement and changes that others wouldn’t be.
Rather than investing their own money, these companies usually operate on the behalf of others, aiming to turn profits for the businesses and individuals they work for. One of the most popular forms of investment management, anybody with a pension plan in place is essentially in business with an institutional investor, whether they know it or not.
A catch-all phrase for the everybody else in the investment field that isn’t part of a big business, non-institutional investors tend to be those that deal in equity, buy and sell debt or invest through a broker, bank or real estate agent. Rather than investing on the behalf of others, they’re using their own funds, with personal goals the motivation for their financial activity, rather than wider business propositions or individual client needs and desires.