According to a 2017 study, institutional investors accounted for nearly 80% of the S&P 500, which makes them a big player in the investing world. Because institutional investing can be complex and requires strict adherence to compliance regulations, we offer our insights on the primary components of the investment process of institutional investors. It is important to define what institutional investing can include in order to examine the investment process. Typically, institutional investing refers to the investment of large sums of money by institutional organizations. Types of institutional investors include organizations like pension funds, insurance companies, foundations, and endowments. The institution (whichever it may be) typically manages these funds on behalf of its clients, members, or other stakeholders. Institutional investing is routinely conducted on a large scale and usually involves large sums of money. Institutions typically manage money on behalf of its stakeholders while adhering to extensive internal guidelines and external regulatory requirements. Institutions often have multiple, concurrent short- and long-term goals and they frequently rely on the expertise of professional investment advisors to manage their pools of capital. By employing professional investment managers, institutional investors usually have access to special teams, research, and investment opportunities that are not readily available to traditional investors. With fiduciary duties and obligations to their many stakeholders, the significant amount of risk involved, and the complexity of applicable compliance rules, staying abreast of regulatory developments is often a high priority for institutional investors. Although it would benefit traditional investors to still pay attention to new and changing regulations, many are not applicable to their individual situations. Traditional investing is typically done on behalf of individuals and not large institutions like foundations, endowment, pension and profit sharing plans. Traditional investing is typically focused on achieving a specific set of personal goals within specified time frames, rather than multiple, concurrent and evolving goals over an indefinite time period. The level of resources available may not be as vast as what is available to institutional investors just based on the scope and scale of the investments. It is worth noting that traditional clients with significant personal wealth often engage investment management firms in a similar way to institutional investors; however, they are usually not defined as an institutional investor. This guide is intended to be a resource that may help some institutional investors understand the major components of the investment process. Since no two institutions are alike, these guidelines should not be considered to be financial or legal advice. For institutional investors, it is important to consider the organization’s objectives and financial needs, as well as the factors that may influence those objectives or goals. When determining the goals and objectives for investing, institutional investors should consider elements such as the size of the organization’s investable capital, its risk tolerance, time horizon for the investments, and liquidity needs. When setting goals, institutional investors should plan to revisit those goals regularly to allow for adjustments as the market dictates or as the organization’s priorities and needs change. Every organization will have its own unique circumstances and goals and, as such, there is no one-size-fits-all solution. By working to understand what they want their investments to achieve or how they expect their investment portfolios to perform, institutional investors can create well-defined strategies to help achieve their identified goals. Since 1985, ACG has helped institutional investors cut through the noise, reduce the distractions, and focus on those factors that can help or hinder them in reaching their goals and achieving their missions. When planning an investment strategy, institutional investors can greatly benefit from conducting extensive due diligence, research, and analysis to better understand constantly evolving market conditions and the ever-changing economic landscape. This complex process often entails gathering and analyzing data from market reports, compiling information from financial statements, and reviewing market trends from reputable sources, including financial data providers and research firms, as well as government agencies, investment banks, and even academic institutions. Institutional investors must also consider a variety of internal factors, such as the organization’s history, composition of its leadership team, and experience of its investment committee members. Research and analysis can provide invaluable information to guide institutional investor decision-making and inform and shape the investment strategies of the organizations they serve. At ACG, we shoulder the time-intensive research and analysis burden for our institutional clients, allowing them to devote more time to their organizations’ more pressing needs. We place a high priority on risk reduction and focus our efforts on developing investment strategies that help support our clients’ missions in achieving their goals. The next stage of the institutional investment process involves investment selection and asset allocation. Institutional investors often distribute capital across a wide range of asset classes. This could include investing across more traditional asset classes such as stocks and bonds, or they may find that other, complex investments are also a suitable option. Institutional investors often rely on specialized asset managers to assist in making complicated and frequently evolving investment selections. Institutional investors typically seek to diversify their investments across multiple asset classes, in an effort to improve portfolio resiliency during market fluctuations. However, the asset classes ultimately utilized will depend on the institution’s unique set of goals, mandates, guidelines, and restrictions. When institutional investors consider investing in various asset classes, they often seek out in-depth research to understand how different asset classes have historically behaved and how each might be expected to perform over time. This analysis can help the institutional investor make more informed decisions that better align the client’s investment strategy with their mission. Asset allocation and manager selection is the third step of our institutional investment process at ACG, and we have over 35 years of experience in creating tailored investment strategies for institutions and organizations. Institutional investors are usually expected to monitor asset performance and adapt to changes by readjusting the investment strategy depending on the organization’s investment goals and prevailing market conditions. There are countless factors that can impact an investment strategy, which is why it is vital to stay apprised of market trends and reports, and to regularly re-evaluate the institution’s position. Ongoing monitoring can help identify individual investments or entire asset classes that are not performing as anticipated, whether a result of global, economic, or market conditions, or unanticipated market events. Staying abreast of changing conditions affords institutional investors the opportunity to change course more nimbly to and improve their chances of a more favorable outcome. Additionally, institutional investors who prioritize regular portfolio monitoring and reviews, are often better positioned to act as new opportunities arise. Overall, continuous monitoring and regular reviews of asset performance – which constitute ACG’s final phase of the institutional investment process – are integral components of a responsibly managed institutional investment process. Staying informed and taking time to learn are just two ways that institutional investors can better position their organizations toward achieving their goals. Institutional investors often find that working with an experienced institutional investment manager, like ACG, demystifies complex investment processes and alleviates much of the burden that accompanies stewardship of institutional capital. Contact ACG today to learn how our four-step institutional investment process can assist you in meeting your fiduciary obligations and help your institution fulfill its important missions. Breaking Down the Investment Process: A Guide for Institutional Investors
Understanding Institutional Investing
Institutional Investing: How it Differs From Traditional Investing
The Investment Process for Institutional Investors
Goal Setting
Research and Analysis
Choosing Investments
Monitoring and Review
Stay Informed