For example, in 1985, no company had institutional ownership of 60 percent or above, whereas, by 2007, 17 companies had institutional ownership of 60 percent or above, including six with institutional ownership of 70 percent or above.
Latest available year-end 2006 data show that total institutional investors – defined as pension funds, investment companies, insurance companies, banks and foundations – controlled assets totaling $27.1 trillion, up from $24.4 trillion in 2005. Their 2006 level represents a ten-fold increase from $2.7 trillion in 1980. The equity market value of total institutional equity holdings increased from $571.2 billion in 1980 (or 37.2 percent of total U.S. equity markets) to $12.9 trillion (or 66.3 percent of total U.S. equity markets) in 2006. "This represents a historic all-time high in the amount of total U.S. equities controlled by these institutional investors," says Dr. Carolyn Kay Brancato, Director of The Conference Board's Governance Center and author, together with Stephan Rabimov, of the report.
Pension funds continue to account for the largest block of institutional investor assets, with $10.4 trillion or 38.3 percent of total 2006 assets under management. Within the pension fund category, state and local pension funds – which tend to be the most activist in terms of exerting corporate governance pressures on companies – have grown more rapidly than other types of pension funds such as corporate pension funds.
Moreover, these state and local pension funds have also been growing more rapidly in the amount of assets they allocate to equities from bonds and other types of investments. For example, public pension funds have increased their share of equity markets from 2.9 percent in 1980 to 10 percent in 2006. By comparison, private trusteed pensions (generally corporate funds) represent a smaller share of equity markets in 2006 than they did in 1980; their share declined from 15.1 percent in 1980 to 13.6 percent in 2006. Dr. Brancato notes: "As the more activist state and local pension funds not only grow in assets but also increase their equity base, they have more stock to vote at annual meetings and in proxy contests."
Historically, U.S. pension funds put very little of their assets into international equities. This amount grew, however, and the largest 25 internationally invested U.S. pension funds put a total of 18.0 percent of their 1999 assets into international equities. By 2005, this amount had declined to 13.5 percent of their assets, although the number has risen to 15.3 percent for 2007.
Pension Funds Make Growing Investments in Hedge Funds
For the first time, the report tracks hedge fund investments generally and investments by pension funds into hedge funds. As of September 2007, some $1.8 trillion in assets was estimated to have been managed by about 10,000 hedge funds worldwide. This represents an increase of 23.6 percent in hedge fund assets and 5.8 percent growth in the number of funds since 2006. Of these, more than half are domiciled in the United States.
Pension funds have been increasing the investments they make in hedge funds during the past three years. The report shows the largest 200 U.S. employee retirement plans with defined benefit assets in hedge funds. The amounts invested in hedge funds by these pension funds rose from an insignificant amount in prior years to $29.9 billion for the year ended September 30, 2005, to $50.5 billion for the year ended September 30, 2006, and then to $76.3 billion for the year ended September 30, 2007. This actually represents a fairly small percentage of total assets for these pension funds – 0.7 percent in 2005, 1.0 percent in 2006 and 1.4 percent in 2007. Thus, while increasing rapidly, hedge fund investments remain a small portion of the total defined benefit plan assets invested by these pension funds.
Based on an analysis of data from Pensions & Investments, the report also finds more and more pension funds are investing in hedge funds. As of September 30, 2007, 62 out of the largest 200 defined benefit pension plans invested in hedge funds compared with only 48 the year before. The majority are "public" state and local funds; of the 62 funds investing in hedge funds in 2007, 37 are state and local or "public" pension funds (which invested $59.6 billion out of a total $76.3 billion for all funds) while 25 are corporate pension funds (which invested $16.7 billion out of a total $76.3 billion for all funds).
