Upfront: Institutional Ownership Continues To Climb

Institutional investors are upping their equity ownership of U.S. markets and the largest 1,000 U.S. corporations. The Conference Board reports that U.S. institutional investors, defined as pension funds, investment companies, insurance companies, banks and foundations, control $24.1 trillion in assets as of 2005 (the latest available year-end data), up from $17.3 trillion in 2002. Institutional assets grew 19.0 percent in the 2002-to-2003 time period, another 11.7 percent from 2003 to 2004 and yet another 5.1 percent from 2004 to 2005.

Within the categories of institutional investors, the "activist" state and local pension funds have substantially increased their percentage share of U.S. equity markets. "These state and local fund investors tend to be the most vocal in demanding corporate governance reforms and will continue to have a profound impact on companies not only in the U.S. but also in global markets, since U.S. investors tend to be out in front of global shareholder activism," says Dr. Carolyn Kay Brancato, senior fellow and director emeritus of The Conference Board Governance Center. "Ten years ago, these funds weren't likely to join in lawsuits or exert pressure in out-of-court settlements. But now, having been severely burned by the Enron and WorldCom situations, these funds are asserting themselves as never before," she says. "In addition, as the election of directors becomes more heated, and as many companies adopt bylaws saying their directors will resign if they don't get a majority of shareholder votes, the voting clout of these activist investors becomes more meaningful."

Institutional investors as a group are also gaining even greater equity control of the largest 1,000 corporations. In 2000, they held 61.4 percent of the equity of the largest 1000 companies. By 2005, they held 67.9 percent.