Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Wednesday, February 21, 2007

The rise and rise of the US institutional investor

The role of the US individual investor has always been seen as vital. Back in the fifties, according to Federal Reserve stats, they owned over 90% of US equity. By the 1980’s this had slipped to 70% and by 2000, it was 50/50 with the institutions.

New research by the Conference Board to be published shortly, indicates that the institutions have grown to 61% ownership. In other words, the US is beginning to parallel European markets, where institutional ownership is often over 80% of most companies. This has potentially important consequences for those seeking to raise capital in the US.

Within the small print of the research is confirmation of the rise of the "activist" state and local pension funds who have trebled their percentage share of U.S. equity markets, while private trusteed corporate funds (who rarely participate in corporate governance activism) have declined in their percentage share of U.S. equity markets.

Since the state and local fund investors tend to be very demanding of governance reforms, not only of local companies, but also the (fast increasing) number of foreign firms in which they invest, this change could have a major impact on the IR approach needed.

As we approach road show season for companies with calendar year ends, activist investors are sure to be more and more on the hit list.


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