Consolidation of Power

Though institutional investors have long been the dominant feature of the market, recent data suggests they are becoming even more influential. Among the largest 1,000 U.S. companies, institutional investors owned 76.4 percent of total shares in 2006, up from 61.4 percent in 2000, according to The Conference Board’s 2008 Institutional Investment Report.

Institutional Ownership (largest 1,000)

2007 76.4%

2000 61.4%

1987 46.6%

 

Institutional Ownership (largest 50)

2007 63.3%

2000 54.2%

1987 48.7%

 

SOURCE: The Conference Board

Institutional investors are also continuing to move a greater portion of their holdings into equities. Equity accounted for only 21.4 percent of institutional assets in 1980; by 2006, that percentage had jumped to 47.5 as institutional investors adopted a more aggressive market strategy. Year-end 2006 data—the latest available—shows that institutions controlled assets totaling $27.1 trillion, up from $24.4 trillion in 2005, according to the report.

Pension funds continue to account for the largest block of institutional ownership, at 38 percent. Of these, the fastest growing are state and local pensions, while corporate funds are declining. State and local plans accounted for 10 percent of all equity ownership in 2006. The growth of these funds could have an impact on boards. “As the more activist state and local pension funds not only grow in assets but also increase their equity base, they have more stock to vote in proxy contests,” says Carolyn Kay Brancato, co-author of the report.

Pension funds have also increased investments in hedge funds. In 2007, the largest 200 pension plans had $76.3 billion invested in hedge funds, up from $50.5 billion in 2006. And more plans are going the hedge fund route, with 62 of the largest 200 funds investing in hedge funds in 2007, up from 48 the year before.