What is an Institutional Investor?
An institutional investor is a company or organization that invests money on behalf of other people. Mutual funds, pensions, and insurance companies are examples. Institutional investors often buy and sell substantial blocks of stocks, bonds, or other securities and, for that reason, are considered to be the whales on Wall Street.
The group is also viewed as more sophisticated than the average retail investor and, in some instances, they are subject to less restrictive regulations.
Types of Institutional Investors
There are several types of institutional investors, such as:
- Credit unions
- Pension funds
- Insurance companies
- Hedge funds
- Venture capital funds
- Mutual funds
- Real estate investment trusts
Institutional investors are entitled to preferential treatment and lower fees. They are also subject to fewer protective rules because they are more qualified traders than individuals and thus better able to protect themselves.
Characteristics of Institutional Investors
The characteristics of institutional investors are the following:
- It is always a legal entity, and it is important to understand that an institutional investor is an enterprise managing a fund (e.g., a mutual fund), but not the mutual fund itself.
- The basis of an institutional investor’s activity is professional, and it manages assets based on the interests and goals of its clients.
- An institutional investor always manages a significant number of funds.