Why Institutional Investors Should Act Like Owners


During and after the recession, most of the blame was placed on bankers and brokers. But one community escaped the blame. It is true institutional investors had their bit to do in causing the recession, more for their provident, retirement and pension fund plans than anything else. After the recession, not much has changed. Many institutional investors are reluctant to take the responsibility of caring for consumer investments. Owing to the recession, their reluctance is understandable, but the consumers trust them for a reason. It is time to return the favor.

When the chips are high, money pours in from all quarters. It is only natural the investor is more interested in committing more money when the market is on the rise. Taking care of the investment, be it asset, hedge or any type, is the responsibility of the investment institution. Institutional reforms are one way of improving terms between the client and the company. Another way is to make room for more dialogues between financial institutions, markets and clients, so a clearer picture is visible, leaving no obscurity.

These measures are necessary for institutional investment firms to secure client confidence. It is common sense. A clearer picture of the market will serve clients and affiliates well. Transparency is another important factor. Many investors maintain secrecy on several transactional aspects of the business.

Simply put, it is two-way traffic. Both clients and institutions work in harmony with their interests. Although these interests collide more often than not, ideally, a collision shouldn’t occur. Client forces the institution to pay dividends every quarter, thinking the company is doing well. On the other hand, the company is stressed, asking the client to provide more loans to show a healthy financial statement. This stress-based relation does not work for either as it shows a trust deficit.

More Confidence, More Ownership

Institutional investors should show more leverage, more courage to own equities as a responsibility instead of going for the quarterly approach. There are institutional managers who are looking at the brighter side of the picture. The majority is still short of confidence on their clients. To end this fragile relationship, the trust level should be increased so the institution and client remain on the same page while business transactions go on. Institutional investors must focus on their performance matrix to achieve more whenever possible, not to sit and wait for more investment to come in.

Investors must hire professionals with a ‘get it done’ attitude, not the middlemen who look after their personal interests while serving both sides half-heartedly. Lastly, a rising market is likely to call more investment, hence a bigger client base for investors. These are fragile moments for investors. They can look to increase client portfolio once they get the fundamentals of the traits right.