An institutional investor (or institutional investor ) is an investor whose capital investments are so high and / or occur so frequently that they require a commercially organized business operation. The opposite is the private investor .
In securities law and investor protection , a distinction is made between private investors and institutional investors. Private investors are predominantly natural persons , while institutional investors are among the companies . This classification has legal consequences with regard to investment advice .
Institutional investors are regarded as “professional customers” within the meaning of WpHG , for whom investment services companies can assume that they have sufficient experience , knowledge and expertise to make their own investment decisions and to adequately assess the associated risks can. A financial instrument is suitable for professional clients if it corresponds to the investment objectives ( born professional clients ) or the investment objectives and financial circumstances (born professional clients ). Institutional investors include banks , investment companies , insurance companies , funds , hedge funds , pension funds , foundations , churches or other non-banks such as large companies or shadow banks and the federal government and the country as national governments and regional governments within the meaning of § 67 para. 2 sentence 2 No. 3 WpHG. In some jurisdictions, such institutional investors are also referred to as Qualified Institutional Investors .(2)
In the Financial Market Directive valid in all EU member states , institutional investors are further subdivided into professional investors and suitable counterparties . Suitable counterparties are investors who are themselves qualified to issue investments, i.e. banks and corresponding government agencies. You enjoy almost no investor protection under the Financial Market Directive . It is limited to securing trust in the integrity and fairness of the capital market . The remaining institutional investors are the professional investors. Your level of protection lies between that of private investors and the appropriate counterparties. The banks must draw up guidelines according to which they treat investors as professional investors, and these criteria must meet the minimum legal standard under Section 67 (7) of the WpHG. Specific prerequisites typical of practice are that the investor has sufficiently high securities assets (more than EUR 500,000), professional knowledge (at least one year of work in a relevant profession or equivalent skills) and sufficient practical trading experience (over the immediately preceding 12 months at least 10 transactions per Quarter, each of which had a turnover of at least EUR 25,000). The law knows born and born professional investors. The former are considered professional from the outset and must expressly ask the bank for the higher level of protection offered by private investors if they want to take advantage of this. The latter, on the other hand, first have to expressly consent to the classification before the bank can withdraw the level of protection of a private investor. In particular, private individuals can only lose their private investor protection if they have given their express prior consent.
For institutional investors, too, there are three investment goals with mutual conflicting goals , namely return , security ( risk ) and liquidity ( fungibility ). This magical investment triangle is characterized by the fact that not all three goals can be achieved equally and to the same extent. The return signals the earning power of an investment property to the investor , while the risk consists of the risk of whether and to what extent the investor has to reckon with the loss of the capital invested . A high return is usually associated with a high risk. Liquidity says something about how quickly an investor can convert the investment back into money without capital losses. With high returns and at the same time high risk, liquidity is again limited. The investment properties can be divided into risk classes depending on the feasibility of the investment objectives . Risk -averse investors prefer security and liquidity, while those willing to take risks prefer the return and consciously accept risks. Institutional investors do not form a homogeneous group because they have different investment objectives. While hedge funds are prepared to take on very large investment risks, insurance companies tend to pursue low-risk investment strategies. Institutional investors usually do not pursue short-term , but medium-term or mostly long-term investment goals.
Many institutional investors in EU member states are not always free in their choice of investment objects, their size and duration. They are subject to statutory or internal investment guidelines that limit these investment objects due to granularity , cluster risk and risk diversification . Insurance companies (in particular life and property insurance , pension funds and death benefit funds ) must invest their capital investments according to the principle of entrepreneurial prudence. They are subject to the strict investment principles of VAG , which finally lists the guarantee assets and, in conjunction with AnlV, with mixing and diversification regulations ( AnlV), whereby certain unearned premiums and technical provisions may not be exceeded. Investment companies and capital investment companies may only invest funds according to the principle of risk diversification (including KAGB ), which means risk diversification. The institutional investors concerned are listed in KAGB and exceptions in KAGB. Hedge funds also proceed in a similar way , although there are also risk-limiting investment regulations for fund of funds according to KAGB. Many institutional investors who are not covered by these investment rules apply them voluntarily.
For institutional investors, further investment restrictions result from the ratings of the investment objects or their issuers by rating agencies . The buy and sell threshold is the “investment grade” between AAA (or Aaa) and BBB- (or Baa3), which reflects the limit up to which an issuer or an issue can be regarded as creditworthy . If these rating codes are below the “investment grade”, institutional investors are not allowed to purchase these investment objects; if the ratings fall accordingly, they must sell these investment objects.
- Graphic: Assets of institutional investors , from: Facts and figures: Globalization , Federal Agency for Civic Education / bpb
- BaFin of June 25, 2010, customer classification of municipalities, rural districts and urban districts according to Section 2 (1) Securities Service Conduct and Organization Ordinance (WpDVerOV) , reference number WA 31 - Wp 2002 - 2007/0127
- Birgit Rost, The importance of the different customer categories , in: Andreas von Böhlen / Jens Kann, MiFID Compendium: Practical Guide for Financial Service Providers , 2008, p. 97 ff.
- Thomas MJ Möllers, Investor Protection through Stock Corporation and Capital Market Law , in: ZGR 1997, p. 334
- Thomas Heidorn, Der Bankbetrieb , 1996, p. 329
- Gunnar Gerig, IPOs from the perspective of corporate governance , 2003, p. 25
- Torsten Lüdecke, Structure and Quality of Financial Markets , 1996, p. 230 f.