Risk and Capital

When I first looked at the assignment I asked myself first, what is institutional investing? It is money that you invest to achieve your investment goals and having it managed by a professional. The companies that provide this service can sell and trade large quantities of shares which can be managed better and easier. This also aids in their investment activities having fewer restrictions than an individual investor. Because of this they have better knowledge of investments and risks. Speaking of investments and risk, what risks are involved in institutional investing?

There is always a big risk when there is a fear of the unknown. Another big risk is a big loss with the large quantities that are being sold and bought. This could possibly lead to some of the investors to invest in sectors with higher risks. As always there is that risks of investing in companies with lifecycles in their peak. Beings that they do deal with larger quantities, it is easier to monitor the transactions more closely so they can stay on track. Then I wondered, what is the process of institutional investing?

The process starts with research which is performed in-depth. Then the managers and the analyst get together to communicate the information they have found. This is usually done weekly or monthly. Then the managers of the investment speak of the ideas and the actions that should be taken. They offer all this with diversification while the committee monitors the risk exposure. This whole process keeps the risks at a lower level.

The actual return and principle value of any investor's investment can fluctuate and the shares could possibly be worth more or less than they originally cost. It is very important to always consider the objectives of the investment, the risks, the fees, and the expenses when you are looking to invest any of your money. Always consult the prospectus. Two important implementation of the institutional approach is speed and decentralization. Speed influences the quantity and is dependent on the cost of transactions. Decentralization also influences the quality.

Reference:

Gitman, L. J. (2006). Principles of Managerial Finance (11th Ed.). Boston, MA: Pearson Addison Wesley.