In this chapter, the following content will be discussed: Objectives and risks facing institutional investors, limits to arbitrage, regulation and other forces operating on institutional investors, impacts on institutional investing of a changing financial world. | Lecture 16: Institutional Investing Migration of Capital: Main Street to Wall Street Trend over decades has been to greater institutional investing, and volume of trade on stock market now dominated by it. Increasing tendency for institutions to participate in corporate governance, solving the control problem referred to by Berle and Means. An epic shift of power in our society towards Wall Street. Financial Assets of US Households 2000-III in $Billions Pension funds $10348 Corporate equities $7447 Equity in noncorporate business $4848 Deposits $4456 Mutual funds $3274 Personal trusts $1124 Life insurance $821 Corporate & foreign bonds & other $2887 Total $35205 Private Pension Funds’ Assets 2000-III in $Billions Corporate equities $2451 Mutual fund shares $918 Assets held at insurance companies (GICs, variable annuities etc.) $506 US Government securities $457 Corp & foreign bonds $287 Other $511 Total $5129 State & Local Employees’ Retirement Funds 2000-III in $B Corporate equities $1953 US government securities $383 Corporate & foreign bonds $324 Other $324 Total $3054 Commercial Banks’Assets 2000-III in $billions Loans $3803 US Government Securities $913 Vault cash $35 Reserves at Federal Reserve $17 Corporate equities $12 Other Total $6344 S&Ls’ & Savings Banks’ Assets 2000-III in $billions Mortgages $722 US Government securities $148 Equities $24 Reserves at Federal Reserve $1 Other $308 Total $1203 Credit Unions’ Assets 2000-III in $billions Consumer credit $181 Home mortgages $125 US Government securities $75 Other $54 Total $435 Mutual Funds Corporate equities $3622 US Government securities $393 Corporate & foreign bonds $368 Municipal securities $228 Other $205 Total $4816 Mutual Fund History In 1920s, many investment companies bilked small investors Massachusetts Investment Trust (MIT) in 1920s had only one class of investors, published portfolio, redeemed on demand Became model for mutual fund industry Investment Company Institute Structure of Mutual . | Lecture 16: Institutional Investing Migration of Capital: Main Street to Wall Street Trend over decades has been to greater institutional investing, and volume of trade on stock market now dominated by it. Increasing tendency for institutions to participate in corporate governance, solving the control problem referred to by Berle and Means. An epic shift of power in our society towards Wall Street. Financial Assets of US Households 2000-III in $Billions Pension funds $10348 Corporate equities $7447 Equity in noncorporate business $4848 Deposits $4456 Mutual funds $3274 Personal trusts $1124 Life insurance $821 Corporate & foreign bonds & other $2887 Total $35205 Private Pension Funds’ Assets 2000-III in $Billions Corporate equities $2451 Mutual fund shares $918 Assets held at insurance companies (GICs, variable annuities etc.) $506 US Government securities $457 Corp & foreign bonds $287 Other $511 Total $5129 State & Local Employees’ Retirement Funds 2000-III in $B Corporate equities
