If you want to carry out investment activities, it is worth exploring the most common and unknown concepts. Many of us are unfamiliar with the characteristics of institutional investors, so you should read more about them.
Who are institutional investors
Institutional investors are large credit and financial companies that play the role of intermediaries between investors and objects of investment activity. Mostly they are collective holders of securities. The activity of these investors is to accumulate the free capital of citizens or companies for further investment in the production of services and goods. It is worth noting that the investor is still the owner of the savings.
The category of institutional investors includes pension and insurance funds, as well as various investment companies. Funds that provide insurance services are created through voluntary contributions from individuals and private firms. Temporarily free cash is invested in first-class securities, among which there may be government obligations.
The mechanism under consideration is also used by non-state pension funds, which are created at the expense of voluntary contributions of employees and entrepreneurs.
Features of institutional investors
An institutional investor manages large capital, as it manages not only its own, but also other people's financial resources. For this reason, they are the largest players in the financial markets. It is generally accepted that investors of this type have a high ability to manage money, unlike ordinary people. This is due to the fact that they have access to the most relevant information. Basically, they have the opportunity to directly negotiate with the management of companies whose securities are traded on the stock exchange. An institutional investor is able to hire financial analysts to optimize financial investments and forecast markets.
It is worth noting that, in view of investing large sums, these investors have less freedom than retail investors. This is due to the fact that they focus only on long-term trends, not capturing all market fluctuations.
Large investment funds can spend several months on the formation of the position, not too dispersing its quotes. The same time can take to exit the position without bringing down the value of the security. For this reason, the fund takes into account all trends and factors that influence the price for certain financial instruments.
Under what conditions can an individual be an institutional investor
The legislation established that an institutional investor, which is an individual, must meet at least two conditions without fail:
- An investor must carry out at least ten operations in the securities market with a significant volume during the previous four quarters.
- The investor has an investment portfolio of more than five hundred thousand euros.
- The investor has at least one year experience in a position that relates to the financial field and requires knowledge of investing in securities.
Subject to these conditions, an individual has the opportunity to enter the market of institutional investors and carry out activities of this type.
Institutional Investors in the Securities Market
Institutional investors, unlike strategic ones, do not have the goal of completely controlling a joint-stock company. In the stock market, they apply fundamental analysis methods, create an investment portfolio, and also manage it to generate income.
The role of institutional investors in managing the investment portfolio is to make securities purchase / sale transactions, as well as to make decisions at meetings of participants in the activity, which helps to increase their exchange rate.
Formation of an investment portfolio
In the process of investing, the institutional investor must ensure the liquidity of the portfolio of stocks and bonds, as well as its profitability and reliability. The greatest attention is paid to reliability, which implies the achievement of minimal risks of loss of invested financial resources and planned profit. At the same time, security is provided at the expense of profitability.
To fix profits by selling securities without significant losses, investment liquidity is achieved. To effectively manage your investment portfolio, you should find and use the optimal ratio between the considered parameters. For this, it is necessary to diversify investments, which implies the purchase of shares and bonds from issuers from various sectors of the economy.
