State, Local Funds Grab Larger Share of Equity Market

December 5, 2000 ( - US institutional investor assets have nearly tripled over the past decade to $18.6 trillion, and control nearly half (49.6%) of the US equity market according to a new report.

At the end of 1998 US institutions had $16.3 trillion in assets, compared with just $6.3 trillion in 1990 the Conference Board noted in its Institutional Investment Report.

“Block” Buster

Pension funds still represent the largest block of US institutional assets (47.5%), while open ended mutual funds account for 21.9% of the total, up from 14.5% a decade ago.

Insurance companies constitute 15.2% of the total, down from 21% in 1990.  Bank and trust companies represent 12.2%, roughly the same as the 12% a decade earlier.  Foundations now make up 2.4% of the total versus 2.3% in 1990.

Private trustee funds are 26.9% of the total, compared with 6.1% for private insured and 14.5% for state and local plans.

State Rises, Private Slips

Those state and local pension funds devote more than two-thirds (69.3%) of their total assets to equities, up from 36.1% in 1990.  These programs are “overwhelmingly the most activist institutional investors with regard to corporate governance matters,” according to the press release. 

Corporate pension funds actually lost ground as a percentage of total equity ownership, dropping from 16.8% of total equities in 1990 to 13.2% by the end of last year.

According to the Conference Board, possible reasons for the declining institutional share of the equity market could be the result of:

  • Trend by institutional investors to invest in hedge funds and other “private market” equities
  • A strong increase in individual shareholdings prompted by strong markets and easier trading access
  • New initial public offerings (IPOs), which are less attractive to institutional investors
  • Massive restructurings and stock repurchase programs by large companies generally held by institutions

Institutional investor assets experienced phenomenal growth over the past three years, rising

18.7% from 1996 – 1997
15.1% from 1997 – 1998
14.0% from 1998 – 1999