For further information: Carolyn Kay Brancato (212) 339-0413 [email protected]
The Conference Board
For Release Thursday, August 20, 1998 at 10AM ET Release #4433A
INSTITUTIONAL INVESTORS - ESPECIALLY THE TOP 25 - ARE GAINING MORE POWER AND CONTROL OVER THE LARGEST US COMPANIES
Institutional investors now control approximately 60% of the outstanding stock of the largest 1,000 U.S. corporations -- with control becoming more and more concentrated among the largest 25 of these institutions, The Conference Board reports today in its Institutional Investment Report.
A growing amount of the U.S. equity market is being managed by the largest 25 institutions. These largest investors controlled 19.7% of total outstanding equities in 1997, up from 16.7% in 1996. The largest 25 institutions also managed 40.9% of the total amount of equities under management by all types of institutional investors in 1997, up from 38.6% in 1996.
The Conference Board's Institutional Investment Report tracks the power of U.S. institutional investors in terms of total assets and equity control of U.S. securities markets. It is widely regarded as the definitive source of information of U.S. institutional investor ownership and control.
IF COMPANIES WANT CAPITAL . . .
"Institutions have substantially and consistently increased their holdings of the largest 1,000 U.S. corporations as measured by market capitalization," says Dr. Carolyn Kay Brancato, the report's principal author and director of The Conference Board's Global Corporate Governance Research Center. "This means corporations must increasingly learn to communicate with these institutions if they want to attract capital."
At the end of 1997, institutional investors had increased their control of the largest 1,000 US corporations to 59.9% - up from 46.6% in 1987. "The extremely high equity concentration we commonly
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- 2 - see today was very rare ten years ago," says Dr. Brancato. "For example, only 10.7% of the top 1,000 companies had institutional ownership in excess of 70% in 1987, but by 1997 38.9% of these companies were more than 70% controlled by institutions."
WHY STOCK TURNOVER MATTERS
"In these stock market roller coaster days, companies need to pay close attention to the turnover characteristics of their institutional investors," says Dr. Brancato. "Turnover is important to companies because it can help them analyze which institutions hold their stock," she continues. "With this information they can try to attract low turnover investors rather than high volatility traders."
Institutional investors experienced average annual turnover of 42.5% in 1997, down slightly but not materially from 43.1% in 1996. (Trading data is for institutions with the "hands on" responsibility to invest institutional money and is expected to vary somewhat.) Money managers continued to have the highest average turnover, at 53.0%, while public pensions that manage their own funds continued to have the lowest average turnover, at 19.3%. After public pension funds, banks have the next lowest level of turnover, 29.9%, followed by insurance companies, 34.3%, and corporate pension funds, 36.3%.
Even more important than average turnover by type of institution is the turnover for each segment of the portfolio of that institution. According to Dr. Brancato, "analyzing portfolio segment turnover allows a company to really get to know the investment objectives of its institutional investors." Institutions base their investment on such strategies as "aggressive growth," "growth," "income," and "indexed only." Not surprisingly, turnover is most vigorous for those following "aggressive growth" strategies, especially as pursued by money managers, who recorded a 95.1% turnover in 1997 for this investment style. Indexed strategies are at the low end of the turnover range, where, for example, public pensions managing their own indexed funds had only a 16.4% turnover.
MUTUAL FUNDS: AGGRESSIVE GROWTH
Mutual fund managers continue to place a major block of their investment in aggressive growth equities - they invested 24.8% of their portfolios in aggressive growth equities in 1997, up from 23.7% in 1996.
Indexation remains a favored strategy, especially for public pension funds. In 1996, public pension funds strongly pursued an indexed strategy, putting 59.2% of their portfolios into indexed funds. Since then, some of the data have been recategorized, and, in 1997, public pension funds continued to devote 37.1% of their portfolios to the "indexed only" investment category and an additional 26.3% to the "balanced" category which contains an unspecified amount of indexed funds.
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MONEY MANAGERS STILL IN CONTROL
Although the largest 25 institutions managed only 19.8% of the stock in the largest 25 corporations in 1985, they controlled 28.0% of that stock by 1997. While the largest five institutional investors held only 8.5% of the stock in the top 25 companies in 1985, by 1997 they increased their share to 12.8%. Money managers continue to have hands-on control of the largest share of institutionally owned stock in the top 25 corporations. Money managers controlled only 10.9% of the stock of the largest 25 corporations in 1985 - this figure rose to 15.4% in 1995, then reached 18.3% in 1997. Banks have experienced a falloff, managing only 13.2% in 1997, down from 17.5% in 1995.
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Source: Institutional Investment Report, Volume 2, Number 2, August 1998
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