73. Institutional Investor (definition)
NOTE: if you’re new to Ground-Up Governance, or are finding anything a bit strange or confusing, you might want to START HERE.
Remember way back when we first talked about shareholders? We mentioned that they come in all shapes and sizes. One of those “shapes” is called an institutional investor, which really just means a big corporation that takes care of other people’s money.
A really clear example of an institutional investor is a pension fund. The “pension” part of a pension fund refers to a system that people pay money into while they’re young so that they can take money out of it when they’re older. The “fund” part is just the pile of money that the corporation takes care of. Most other institutional investors are pretty similar to pension funds – they just take care of people’s money for different reasons.
One of the ways that institutional investors take care of people’s money is by buying lots of shares in lots of different corporations. Ground-Up Governance is written in Canada, and we just checked how many public companies the Canada Pension Plan Investment Board has invested in: 1368. And they also buy shares in non-public companies, and they buy buildings, and they buy people’s debt, and more.
In other words, when Reallie Steilish went public, there was a pretty high probability that one or more institutional investors bought shares. Maybe lots of shares, actually. Just for context, the S&P 500 is a list of 500 really popular publicly traded companies in the United States. Google tells Ground-Up Governance that the value of all the shares of the companies on the S&P 500 right now is 36.67 *TRILLION* dollars. Google also tells Ground-Up Governance that institutional investors collectively own approximately 80% of those shares. Pretty nutty, huh?
None of this is good or bad, really. Or maybe it’s both. Institutional investors provide super important services to the people whose money they take care of, like helping to make sure that people have money when they get older. That’s good! But you can also see that a pension fund might only really want one thing from Reallie Steilish: a share price that keeps going up and up over time. You, on the other hand, have demonstrated a pretty nifty (and maybe risky) entrepreneurial streak that might make institutional investors a bit nervous. You could just make sure to keep being a controlled company, but still…institutional investors can be pretty passionate (and persistent), as we’ll see next week.