Thursday, July 19, 2012

Mom and Pop – those filthy institutional investors

It would be helpful if the Australian born co leader of the N.Z.Greens with the sharp dislike of “foreigners” in general and Chinese in particular was to learn a bit about how Mum and Dad (Mom and Pop in investment terms) investors – beloved of many in N.Z. end up (verb chosen advisedly) investing in this country. Clayton Cosgrove could do a good deal better than pretend he doesn’t know as well….

Worldwide more than half the investment in equities markets is held by institutions. Those institutions include insurance companies (generating funds to help pay Mom and Pops claims), pension funds (helping pay Mom and Pop’s retirement), Building Societies (helping generate interest for Mom and Pop) and Investment Funds (generating returns for Mom and Pop). Even so called “friendly” institutions with Kiwisaver funds or the “Cullen” fund invest in institutions.

In large measure – institutions are Mom and Pop. As well as creating wealth for the “little guy” so beloved of various critics, institutions provide risk management by diversification – we know what happens when Mom and Pop try this on their own (they tend to concentrate savings in single asset classes like housing and finance companies).

Institutions provide governance services putting pressure on company boards, analysing company performance, reporting their findings to investors and the newspapers – in short they work for “Mom and Pop”…. and in ways Mom and Pop never could and at a lower cost.

Institutions buying shares sold in partial asset sell downs are therefore buying for Mom and Pop… as usual, there is no conspiracy – other than people telling you Morris dancing is normal.


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