A legend surrounding the late bank robber Willie Sutton has the by-then-incarcerated criminal responding to the question why he robs banks as replying, “because that’s where the money is.” This is not to suggest that institutional investors are criminals; they are not, except in rare circumstances in which they are...
A legend surrounding the late bank robber Willie Sutton has the by-then-incarcerated criminal responding to the question why he robs banks as replying, “because that’s where the money is.” This is not to suggest that institutional investors are criminals; they are not, except in rare circumstances in which they are investigated for violations of securities regulations. The purpose of including the quote in this answer is to highlight the role of institutional investors in funding projects in today’s business environment. Institutional investors are usually, but not always, groups of investors, often pension and mutual funds, commercial banks, money managers, etc., who control very large amounts of money seeking investment opportunities for further growth and protection against taxation. Institutional investors are important today because that’s where the money is.
There is often a level of financial stability surrounding many institutional investors that may not exist among retail investors, individuals and small groups representing relatively minor amounts of cash. While the solvency of pension funds has been a problem in the past, they are usually fairly stable, as are money markets and investment banks. So, in addition to representing the source of major financing opportunities, institutional investors are usually not a high risk of insolvency. They are usually not going anywhere. They are, as the name suggests, institutions.
The above includes numerous qualifiers, such as “usually,” “relatively,” “fairly,” and “except in rare circumstances,” because risk cannot be entirely eliminated even in discussions of the largest corporations and investment firms. There have been too many scandals, such as the Arthur Andersen/Enron scandal and the demise of once-venerable financial services firm Lehman Brothers, the latter in the context of the 2007-8 financial collapse. As a rule, however, and for purposes of explaining the continuing role of institutional investors in today’s business environment, this category of investor remains the most desired source of funding. They have the money and they are looking for investment opportunities.