Develop and improve products. List of Partners vendors. Institutional investors are organizations that pool together funds on behalf of others and invest those funds in a variety of different financial instruments and asset classes. They include investment funds like mutual funds and ETFs, insurance funds, and pension plans as well as investment banks and hedge funds. These can be contrasted with individuals who are most often classified as retail investors.
Institutional investors control a significant amount of all financial assets in the United States and exert considerable influence in all markets. This influence has grown over time and can be confirmed by examining the concentration of ownership by institutional investors in the equity of publicly traded corporations. Institutional investors are generally considered to be more proficient at investing due to the assumed professional nature of operations and greater access to companies because of size.
These advantages may have eroded over the years as information has become more transparent and accessible, and regulation has limited disclosure by public companies.
Institutional investors include public and private pension funds, insurance companies, savings institutions, closed- and open-end investment companies , endowments and foundations. Institutional investors invest these assets in a variety of classes.
However, these figures drastically vary from institution to institution. Pension funds receive payments from individuals and sponsors, either public or private, and promise to pay a retirement benefit in the future to the beneficiaries of the fund. This law established the accountability of the fiduciaries of pension funds and set minimum standards on disclosure, funding, vesting, and other important components of these funds. Investment companies are the second largest institutional investment class and provide professional services to banks and individuals looking to invest their funds.
Most investment companies are either closed- or open-end mutual funds, with open-end funds continually issuing new shares as it receives funds from investors. Closed-end funds issue a fixed number of shares and typically trade on an exchange. Open-end funds have the majority of assets within this group, and have experienced rapid growth over the last few decades as investing in the equity market became more popular. However, with the rapid growth of ETFs, many investors are now turning away from mutual funds.
The Massachusetts Investors Trust came into existence in the s and is generally recognized as the first open-end mutual fund to operate in the United States. Investment companies are regulated primarily under the Investment Company Act of , and also come under other securities laws in force in the United States.
Insurance companies are also part of the institutional investment community and controlled almost the same amount of funds as investment firms. These organizations, which include property and casualty insurers and life insurance companies, take in premiums to protect policyholders from various types of risk.
The premiums are then invested by the insurance companies to provide a source of future claims and a profit. Most often life insurance companies invest in portfolios of bonds and other lower risk fixed-income securities.
Property casualty insurers tend to have a heavier allocation to equities. Savings banks are highly regulated entities and must comply with rules that protect depositors as well comply with federal reserve rules about fractional reserve banking.
As a result, these institutional investors put the vast majority of their assets into low-risk investments such as Treasuries or money market funds. Depositors of most U. Foundations are the smallest institutional investors, as they are typically funded for pure altruistic purposes. These organizations are typically created by wealthy families or companies and are dedicated to a specific public purpose.
Fraud alert notice: Investment and recruitment scams are on the rise. Please be aware of scammers falsely representing Invesco. Click here to learn more. Investment Dictionary. Invesco Australia Frequently asked questions What is an institutional investor? Firstly, Institutional Investors may have concerns about issues that would typically be favorably received by other investors. Due to the variety of sovereign tax exemptions that exist globally, the tax-driven sensitivities that Institutional Investors need to manage can be substantial and nuanced.
These sensitivities need to be managed within infrastructure consortiums and across co-investors in large infrastructure projects. As a threshold matter, Institutional Investors will want to manage the risk of a manager being treated as an agent of the investor under local tax law. This issue is growing as Institutional Investors seek to build global infrastructure platforms in partnership with asset managers and it must be balanced against the risk of double-taxation if fund vehicles are not based in tax-neutral jurisdictions.
Institutional Investors need to be closely involved in designing platform structures and governing management agreements, which typically need to contain some very strict limitations on what manager activities are permitted or prohibited. As Institutional Investors build in-house capabilities to help source and manage larger, more complicated deals, increasing disclosure obligations and heightened community expectations, they require ever greater access to data in connection with investments.
The emergence of Infratech is also delivering new data for enhanced management of assets. Institutional Investors may need to educate infrastructure asset managers on their particular needs for financial and performance data.
Many Institutional Investors are focused on managing the risk of adverse publicity from tax structuring that may be perceived as aggressive and structures once considered uncontroversial may become outmoded as tax reform occurs and public perception shifts. Investors and their asset managers also need to proactively engage with policymakers to prevent ill-considered reforms that may damage legitimate infrastructure projects. Responsible tax policy may need to be mandated at the fund and investee company level.
Infrastructure plays a critical part in driving the green energy transition and economic recovery from COVID, with the ESG agenda taking center stage. Transparency and accountability for tax structures is a key element, particularly for Institutional Investors that invest into infrastructure projects in foreign countries.
Institutional Investors need a clear, well-documented, tax governance framework and must be prepared to demonstrate it both in principle and action to public stakeholders. Asset managers that partner with Institutional Investors also need to understand the ESG frameworks of investors and develop policies that pursue consistent objectives. This involves periodic re-assessment of global infrastructure investment structures, in addition to underlying investee portfolios through close engagement between asset managers and investors to coordinate responsible tax policies and practices.
Not all Institutional Investors, or investments, are the same and flexibility is needed to accommodate different investors in large infrastructure projects. Availability of tax privilege will vary by jurisdiction and by investor. Certain types of Institutional Investors may enjoy broader benefits than others, even within the same jurisdiction. Co-mingling different classes of Institutional Investors in structures can result in the loss of certain preferences.
Institutional Investors need to be aware of the profile of their fellow co-investors and be confident that their Asset Managers appreciate these important differences. Understanding the reasons for special structuring and other efforts will help ensure Institutional Investors are well-placed to invest across the spectrum of infrastructure classes and in combination with different types of investors.
KPMG professionals can help provide insights and advice on market leading structures to accommodate all parties in a transaction. Treasury Department Circular The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. Some or all the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.
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