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Did you realize that the largest stockholders, i.e. Investors, in America are institutions? At some point there comes a reality check in the growth of a public company, no institutional involvement…probably not attractive to long-term shareholders. From Aardvark Insurance to Zebra Pension Fund… SSGI has the answers.
Shareholders:
Institutional shareholders now hold the majority of common stock in the United States. Pension plans alone will be the majority shareholders in most companies by the year 2010. This makes it possible to have in the United States what has been a key ingredient in Japanese and German competitiveness: a dominant class of corporate owners with a long-term orientation.
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Investors:
Institutional investors are indeed a diverse crowd. They include pension funds, mutual funds, insurance companies, endowments, etc. The institutional buyers are the hub of any underwriting syndicate. Institutions have only one major thing in common: they manage assets on behalf of someone else, someone to whom they owe a duty as fiduciaries. All of the major institutions collectively are estimated to own 45% of the total of publicly held U.S. equity securities.
Investment Alternatives:
Mutual funds perform an astonishingly difficult task in providing investors with a hybrid investment alternative. Each fund proclaims its own objectives, its own balance of risk and reward and current and deferred income. There is no one company that embodies the precise promise made in a mutual fund prospectus. That promise is only realized by the blend of holdings that the fund manager selects.
The insurance companies, perhaps more than any other class of institutional investor, have a symbiosis with the companies in which they invest. First, they are usually holders of debt securities of any company in which they have an equity investment. Debt instruments are very compatible with their needs because they have a reliable, set payout. Second, they often have a commercial relationship with companies in which they invest by selling them insurance against innumerable risks.
Universities and foundations are institutional shareholders because they are usually funded through endowments. People contribute to a fund and the interest that fund generates is used for whatever charitable or educational purpose the endowment permits. This money is put into widely diversified investments including common stock.
Getting In:
With these facts stated, the question is: "Why would an institutional investor be interested in my company?" There is no other area of investing where ‘whom you know’ counts as much as with institutional investors. The hardest thing for an emerging growth company to overcome is an introduction to the institutional portfolio manager and when applicable investment committee members. Sometimes, even harder than an introduction, is knowing who if anyone is interested in your particular type of business and at what stage of earnings growth, assets, etc. would this particular institutional investor even take a meaningful look. Companies trying to interest an institutional investor that would absolutely have to pass in the first place often waste literally hundreds of hours.
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