Large Institutional Investors Research Articles

The game of rental housing financialization: Institutional investors in the Swedish housing system

While attention has been paid to how politico-legal reforms have enabled or inhibited the entrance of institutional investors, less is known about how these providers impact or challenge existing actors, regulations, processes, and institutional arrangements within local housing systems. This article departs from the case of Sweden: it has been discussed how institutional investors have been enabled by the country’s soft rent regulation, which is based on a collective bargaining process between all providers and the Swedish Union of Tenants (SUT) and allows for sharp rent increases after renovation. We show how in the Swedish case large institutional investors exploit existing institutional arrangements and challenge the norms that underlie the functioning of the rental housing system. To explore and illustrate this process we rely on the theory of incremental institutional change and complement it through the conceptual metaphor of “gaming.” We argue that housing systems can be understood as playing fields in which different actors employ tactics to defend or advance their interests, without, necessarily, the need to formally change the rules of the game. We suggest that more attention should be paid to institutional investors’ active engagement with local housing systems over time, beyond dichotomies of enablement or inhibition.

The influence of institutional investors on the commercial policy of portfolio companies

ABSTRACT The antitrust scholarship raised concerns on the potential anticompetitive effects of large institutional investors’ common minority shareholdings in competing firms. Such concerns hinge on whether such common shareholders have the ability to influence the commercial policy of their portfolio companies. As investment managers with passive investment strategies often hold such positions, these concerns are exacerbated by the increase in the share of public equity held by such entities. This article attempts to frame exhaustively the agency problems peculiar to investment managers, highlighting the requirement for accessible means and significant incentives for them to credibly be held to exercise influence over the commercial policy of their portfolio companies, and, ultimately, shows that the evidence that such means and incentives are available is limited. As a result, this article argues that “common ownership” concerns require further analysis of the mechanics through which influence is transmitted to portfolio companies.

A Study of the Value of Institutional Investor Involvement in M&A Activities of Nordic Corporations

This article examines the impact of the interaction between institutional investors and large shareholders in value creation process. Our study of Nordic companies from 2001 to 2016 finds a positive relationship between mergers and acquisitions (M&A) initiation and the ownership levels of both large shareholders and institutional investors, while their interaction shows a negative influence. We found no evidence that mergers are driven by value expropriation motives, as the gap between voting and cash flow rights of the largest shareholder has no significant impact on M&A likelihood. While market reactions suggest potential value expropriation by large shareholders, post-merger performance analysis does not support this hypothesis. Overall, our findings suggest that large shareholders, rather than destroying value, contribute to value creation in Nordic companies, with institutional investors playing a role in safeguarding this process.

Who rents out the land? Agrarian capital accumulation and lessor landowners in South America: The case of Uruguay

AbstractThis article studies the connections between lessor landowners, land grabbing and land financialization in contemporary capital accumulation. Drawing upon extensive empirical research conducted in Uruguay, which combined database analysis and in‐depth interviews, the paper provides key insights to understand why land leasing has become a central strategy of ground rent appropriation among different types of landowners at the beginning of the 21st century. Our main results show that the leasing strategy is a combination of tenant‐capitalists' expansion, social differentiation and demographic processes of the small landowning capitals displaced from production that rent out their lands, the process of land financialization through large institutional investors, which deploy a land banking strategy, and the optimization of land exploitation among landowner‐capitalists. Moreover, our results highlight the importance of prioritising the study of landowners as a class in itself and the different forms of ground rent appropriation.

Controlling shareholders and sustainable corporate governance: The role of dual-class shares

Abstract Low-carbon innovation is necessary to overcome the delay of governments in implementing the Paris agreement. However, large institutional investors only engage in climate risk management. They cannot commit to low-carbon innovation because that is fundamentally uncertain, short-term unprofitable, and their index-tracking strategy is incompatible with screening firm-specific breakthroughs. To pursue sustainable corporate governance, institutional investors should rather tie their hands with controlling shareholders. Controlling shareholders can contribute their entrepreneurial vision to low-carbon innovation while institutional investors allow them to scale this vision. This article argues that institutional investors catering to the preferences of climate-conscious beneficiaries should finance controlling shareholders through conditional dual-class shares. Dual-class shares allow relaxing the financial conditions for control. To fulfil their mandate from climate-conscious beneficiaries, institutional investors can outcompete short-term profit-seeking investors by offering controlling shareholders a higher wedge between voting rights and economic interest and the possibility to cash in higher idiosyncratic private benefits of control, if successful, conditional on engaging in low-carbon innovation. Having at stake welfare-increasing private benefits of control, as well as all or most of their wealth, controlling shareholders are incentivized to discover low-carbon breakthroughs or to acknowledge failure to do so. Corporate law should facilitate contracting between controlling shareholders and institutional investors to support this incentive. Target-contingent transfer sunsets should allow cashing in control premiums only if the low-carbon innovation succeeds. Divestment sunsets and other contractual safeguards should prevent controlling shareholders from increasing agency cost, without undermining equity capital raising. Dual-class recapitalizations should be allowed with a majority-of-minority vote.

Do price trajectory data increase the efficiency of market impact estimation?

Market impact is an important problem faced by large institutional investors and active market participants. In this paper, we rigorously investigate whether price trajectory data from the metaorder increases the efficiency of estimation, from the view of the Fisher information, which is directly related to the asymptotic efficiency of statistical estimation. We show that, for popular market impact models, estimation methods based on partial price trajectory data, especially those containing early trade prices, can outperform established estimation methods (e.g. VWAP-based) asymptotically. We discuss theoretical and empirical implications of such phenomenon, and how they could be readily incorporated into practice.

Hybrid housing models for older Australians: institutional framework and policy challenges

Older people seeking affordable housing in the mainstream housing tenures such as home ownership, private renting and social housing face increasing difficulties in accessing and remaining in appropriate housing. The mainstream housing tenures face pressure due to widening housing affordability problems in home ownership and the private rental sector in many advanced economies, exacerbated by declining investment in social housing. Hybrid housing models are often promoted as affordable and sometimes appropriate and adequate housing options for older people. These models combine aspects of ownership and renting in diverse ways, often posing challenges for tenure-based housing policies. Drawing on the case of Australia, the paper presents the findings of an institutional review of the production, consumption, management, and exchange of land lease communities, often marketed as a more affordable form of housing for older people compared to the more established hybrid form of retirement villages. Noting difficulties in scoping the size and significance of the land lease community sector from current data collections, we find (a) entry of large institutional investors risks undermining the relative affordability of the sector for older people; (b) security of occupancy is a critical policy issue and (c) concentration in rural areas raises concerns around risk of natural disasters and access to aged care and other services. These issues are often overlooked in housing policy and pose challenges for other policy domains including income support, social care, and health services.

Manager myopia and green technology innovation

PurposeWith the growing concern of various sectors of society regarding environmental issues and the promotion of sustainable development, green technology innovation is generally considered to be conducive to the long-term development of enterprises. However, because of the existence of agency problems, managers may have shortsighted behaviors. Then how will managers' shortsighted behaviors affect enterprises' green technology innovation?Design/methodology/approachThis paper uses machine learning-based text analysis methods to construct a manager myopia index based on the data from A-share listed companies on the Shanghai and Shenzhen Stock Exchanges from 2015 to 2020. We examine the impact of manager myopia on green technology innovation in companies.FindingsOur study finds that manager myopia significantly inhibits green technology innovation in companies. However, when multiple large shareholders coexist and the proportion of institutional investors' holdings is high, it can alleviate the inhibitory effect of manager myopia on green innovation. Heterogeneity tests show that the impact of manager myopia on green technology innovation is relatively significant in non-state-owned and manufacturing companies, as well as in the electricity industry. Robustness tests demonstrate that our conclusions remain valid after using propensity score matching to eliminate endogeneity problems.Originality/valueFrom the perspective of corporate governance, this paper incorporates managers' shortsightedness, multiple large shareholders and institutional investors' shareholding ratios into the same logical framework, analyzes their internal mechanisms, helps improve corporate governance, enhances green innovation capabilities and has strong implications for the implementation of national innovation-driven development strategies and the achievement of “carbon peak” and “carbon neutrality” targets.

The risk-adjusted performance and drivers of French healthcare property

PurposeHealthcare property has become an important alternate property sector in recent years for many international institutional investors. The purpose of this paper is to assess the risk-adjusted performance, portfolio diversification benefits and performance dynamics of French healthcare property in a French property portfolio and mixed-asset portfolio over 1999–2020. French healthcare property is seen to have different performance dynamics to the traditional French property sectors of office, retail and industrial property. Drivers and risk factors for the ongoing development of the direct healthcare property sector in France are also identified, as well as the strategic property investment implications for institutional investors.Design/methodology/approachUsing annual total returns, the risk-adjusted performance, portfolio diversification benefits and performance dynamics of French direct healthcare property over 1999–2020 are assessed. Asset allocation diagrams are used to assess the role of direct healthcare property in a French property portfolio and in a French mixed-asset portfolio. The role of specific drivers for French healthcare property performance is also assessed. Robustness checks are also done to assess the potential impact of COVID-19 on the performance of French healthcare property.FindingsFrench healthcare property is shown to have different performance dynamics to the traditional French property sectors of office, retail and industrial property. French direct healthcare property delivered strong risk-adjusted returns compared to French stocks, listed healthcare and listed property over 1999–2020, only exceeded by direct property. Portfolio diversification benefits in the fuller mixed-asset portfolio context were also evident, but to a much lesser extent in a narrower property portfolio context. Importantly, this sees French direct healthcare property as strongly contributing to the French property and mixed-asset portfolios across the entire portfolio risk spectrum and validating the property industry perspective of healthcare property being low risk and providing diversification benefits in a mixed-asset portfolio. However, this was to some degree to the loss or substitution of traditional direct property exposure via this replacement effect. French direct healthcare property and listed healthcare are clearly shown to be different channels in delivering different aspects of French healthcare performance to investors. Drivers of French healthcare property performance are also shown to be both economic and healthcare-specific factors. The performance of French healthcare property is also shown to be different to that seen for healthcare property in the UK and Australia. During COVID-19, French healthcare property was able to show more resilience than French office and retail property.Practical implicationsHealthcare property is an alternate property sector that has become increasingly important in recent years. The results highlight the important role of direct healthcare property in a French property portfolio and in a French mixed-asset portfolio, with French healthcare property having different investment dynamics to the other traditional French property sectors. The strong risk-adjusted performance of French direct healthcare property compared to French stocks, listed healthcare and listed property sees French direct healthcare property contributing to the mixed-asset portfolio across the entire portfolio risk spectrum. French healthcare property’s resilience during COVID-19 was also an attractive investment feature. This is particularly important, as many institutional investors now see healthcare property as an important property sector in their overall portfolio; particularly with the ageing population dynamics in most countries and the need for effective social infrastructure. The importance of French direct healthcare property sees direct healthcare property exposure accessible to investors as an important alternate real estate sector for their portfolios going forward via both non-listed healthcare property funds and the further future establishment of more healthcare REITs to accommodate both large and small institutional investors respectively. The resilience of French healthcare property during COVID-19 is also an attractive feature for future-proofing an investor’s portfolio.Originality/valueThis paper is the first published empirical research analysis of the risk-adjusted performance, diversification benefits and performance dynamics of French direct healthcare property, and the role of direct healthcare property in a French property portfolio and in a French mixed-asset portfolio. This research enables empirically validated, more informed and practical property investment decision-making regarding the strategic role of French direct healthcare property in a portfolio; particularly where the strategic role of direct healthcare property in France is seen to be different to that in the UK and Australia via portfolio replacement effects. Clear evidence is also seen of the drivers of French healthcare property performance being strongly influenced by healthcare-specific factors, as well as economic factors.

Large investors’ involvement in Ireland's primary care centres

Abstract Background In 2001, Ireland announced a Primary Care Strategy that has led to the implementation of primary care centres (PCCs) throughout the country. This presentation examines the nature and extent of private sector involvement in establishing the PCC network since 2001, focusing on large global investors. Methods A dataset on all primary care centres in Ireland was constructed, comprising information on geographical location, the year that it became operational, and its delivery mode (public procurement, lease, or public-private partnership). A survey of large investment patterns was also conducted through the grey literature and news reports. Results By 2023, 172 PCCs are planned to be operational, developed through public, leased or public-private partnerships arrangements. Before 2009, PCCs were delivered by traditional public procurement, but since 2009, private delivery methods have been prioritized. Leased primary care centres have been attractive for large institutional investors attracted by stable rental income. This paper surveys the patterns and trends involved. Conclusions Trends in large multinational and domestic investments in the primary care market should be documented systematically because they have the potential to transform the existing PCC network and primary care system.

Sustainable development - how to make money while saving the planet?


 The subject of the sustainable growth is not new. In 1970s , in the state of Califronia under the influence of consumer federations the legislators started to introduce laws regulating the impact of economic activity on the environment. Today in a growing number of countries shareholders, including large institutional investors start to require that companies follwo similar legal regulations.

Interpreting institutional investment activity as a markov process: A stock recommender

Institutional investors like hedge funds are particularly resilient in times of volatility, primarily due to their access to a slew of complex trading strategies and extensive research capabilities; both of which are generally outside the reach of common investors. Fortunately, the U.S. Securities and Exchange Commission has mandated that large institutional investors publicly disclose the positions held by them at the end of a quarter, within the following 45 days. We then ask the question “Given our access to snapshots of positions held by large investors, can we extract alpha by approximating their aggregate behaviour?” In this paper, we introduce a stock recommendation model driven by the aggregate behaviour of institutional investors. We interpret stocks as the states of a Markov chain. The corresponding state transition matrix is defined based on the aggregate behaviour of investors. By designing the transition matrix to hold for aperiodicity and irreducibility, the steady state distribution of this chain is treated as a ranked list of stocks. We build a long only, equally weighted portfolio of stocks to trade using these recommendations. We observe that the returns on this portfolio beat existing models in the literature, and standard hedge fund indices both in terms of annualised returns and Sharpe ratio.

Optimal intertemporal liquidation of institutional investors with cash requirements and viable loans

This study examines the optimal intertemporal liquidation strategies to meet the cash requirements of large institutional investors in the presence of permanent and temporary price impacts. We construct a two-period optimal liquidation problem tailored to investors with intertemporal cash requirements, such as pension funds that need to meet periodic payment obligations. We impose viable government loans that can be deployed by state-owned investors, thereby extending the existing literature, which has focused largely on the private sector. The optimal liquidation strategies from a broader perspective can be sorted into three types: preemptive, conventional, and deferred liquidation. The use of viable large-scale loans can be attractive as a buffer in intertemporal decisions. Proper consideration of the timing and amount for liquidation of institutional investors is necessary. This study has important implications for policy makers and can inform the design of strategies for managing the liquidity needs of large institutional investors.

Hybrid Forex prediction model using multiple regression, simulated annealing, reinforcement learning and technical analysis

Foreign exchange market refers to the market in which currencies from around the world are traded. It allows investors to buy or sell a currency of their choice. Forex interests several categories of stakeholders, such as companies that carry out international contracts, large institutional investors, via the main banks, which carry out transactions on this market for speculative purposes. One of the most important aspects in the Forex market is knowing when to invest by buying, selling, and this through the recorded trend of a currency pair, but given the characteristics of the Forex market namely its chaotic, noisy and not stationary nature, prediction becomes a big challenge for traders when it comes to predicting accuracy. This paper aims to predict the right action to be taken at a certain moment through the development of a model that combines multiple techniques such multiple regression, simulated annealing meta-heuristics, reinforcement learning and technical indicators.

ANALYSIS OF THE PRIMARY DEALERS FUNCTION

The purpose of this paper is to examine the role of primary dealers, whose introduction promotes the development and trading of securities on the primary market while also making government securities easier to place. As a result, primary dealers act as a bridge between the government and large institutional investors. Their active role increases secondary market liquidity, which can potentially lead to an increase in investor base, simplification of the trading process, and reduction of transaction costs. As a result, borrowing costs for securities issuers are reduced, which contributes to the continued development of financial markets. In this paper we will examine the selection criteria and obligations of primary dealers, as well as their role in capital market development and monetary policy implementation. The final section of the paper focuses on the evolution of this function in Serbia. So far, regulatory changes in Serbia have enabled the function of primary dealers to be implemented, but they have not yet been implemented. Their implementation in Serbia would increase primary market liquidity, reduce the risk of debt financing, and contribute to the secondary market's further development.

Strategic interaction between institutional investors and supervision department: a theoretical analysis of low-price collusion in SBIC

We introduce evolutionary game method to analyze low-price collusion in inquiry market of Sci-Tech Innovation Board of China (SIBC) from the perspective of strategic interaction between large institutional investors (LIIs), small and medium-sized institutional investors (SMIIs), and supervision department (SD). The results show that supervision behaviors of SD, and quotation behaviors of institutional investors, are subject to supervision conditions. Under the condition that benefits of tough supervision are lower a lot than minimum benefits of light supervision (light supervision condition), SD will choose light supervision and institutional investors will turn to illegal quotation in response. Finally, a steady-state equilibrium with low-price collusion will form in SIBC’s inquiry market even with a large supervision penalty for illegal quotation. On the contrary, under the condition that benefits of tough supervision are higher a lot than maximum benefits of light supervision (tough supervision condition) and with a large penalty for illegal quotation, SD and institutional investors will choose tough supervision and legal quotation. Further numerical simulations under light supervision condition show that: (1) High-price culling rule will become a booster for low-price collusion and accelerate SMIIs’ evolutionary process to imitative quotation. (2) Blindly increasing penalties for illegal quotation or reducing the culling rate is not an appropriate approach to solve the problem of low-price collusion since it cannot shift supervision condition from light into tough and make SD supervise toughly. (3) Institutional investors’ choices of quotation strategies are more volatile and highly susceptible to supervision behaviors of SD when facing exogenous uncertainty. Therefore, the keys to solving the problem of low-price collusion are shifting supervision condition from light into tough through increasing incremental benefits of tough supervision, and providing institutional investors with a stable and predictable supervision policy. In conclusion, the creation of a fair inquiry market doesn’t only depend on restraint and punishment to institutional investors, but also requires the establishment of supervision mechanism those are compatible with market-based inquiry.

Міжнародний досвід фінансування інфраструктурних проєктів

Abstract. Introduction. The article is devoted to issues of international experience in financing infrastructure projects. At the current pace of development, the load on infrastructure in most countries of the world will increase many times over the next decade, and its timely development will become the main guarantee of sustainable growth of the world economy and trade. The design, construction, and expansion of large infrastructure facilities will take years, and decisions regarding their financing mechanisms must be made quickly, which necessitates additional research into this issue. Purpose. On the basis of the conducted research, it was found that the main factors of economic growth will be the increase of humanity (+19% by 2030) to 8.3 billion people, urbanization (the urban population will increase by 40% by 2030; and its share will grow from 52% to 58%), outpacing the growth of population incomes, further development of international trade and tourism. The authors formed the structure of investments in the world for 2020 and found out that the share of state budgets and national funds, according to analysts' estimates, accounts for the main volume of investments in infrastructure - more than 65%. The tendency of the predominance of debt financing in the general structure of liabilities of infrastructure projects has been studied. The results of the OECD study, which was conducted among the largest institutional investors, were analyzed. Results. The research examines modern state proposals for new financing mechanisms, in particular, foreign experience in implementing the prospects of debt and equity financing of international projects, as well as the experience of individual countries - China, India, and Brazil. It has been proven that in the past the investment risks in this area were too high and the profitability was insignificant, which limited the range of investors. Conclusions. Investor interest in infrastructure projects is growing every year, and financing infrastructure projects requires new sources, in particular, an increase in private investment in the industry. It was noted that it is important for Ukraine to take into account and use successful world experience to finance its own infrastructure projects.

To tender or not: an investor’s dilemma in the first hostile takeover in Indian IT services industry

Learning outcomesThe learning outcomes of this study are as follows:1. Learn to analyze a hostile takeover bid from the perspectives of the acquirer, target firm’s management and a large institutional investor in the target firm.2. Review the structuring, financing, valuation, mode of consideration, legal and regulatory aspects of a hostile takeover.3. Understand the role of the target firm’s board in a hostile takeover transaction.4. Address “to sell or not to sell” dilemma of a large institutional investor in the target firm in the event of a tender offer given financial and non-financial considerations.Case overview/synopsisOn June 14, 2019, Pulak Prasad, Founder and Chief Executive Officer (CEO) at Nalanda Capital, in consultation with other managing partners at Nalanda Capital, had to decide whether to tender a 10.6% equity holding in Mindtree Ltd. in an unsolicited open offer made by Larsen and Toubro (L&T) Ltd. Until then, Nalanda Capital, led by Prasad, had aligned with the Mindtree founders and had led a campaign to thwart L&T’s bid to acquire Mindtree; L&T’s offer to acquire 31% of Mindtree shares was because of open on June 17, 2019 and it is time for Prasad and the management team to take a reasoned call – whether to stay in Mindtree or to exit? Associated aspects included – What could be the consequences of not selling the stake? What could be L&T’s game plan? Could Mindtree continue to create wealth for its shareholders under L&T?Complexity academic levelThis case is appropriate for Mergers & Acquisitions and Strategic Financial Management courses in modules focused on structuring, financing and takeover defence techniques in a hostile takeover transaction. The case is appropriate for graduate MBA and EMBA programmes.Supplementary materialsTeaching notes are available for educators only.Subject codeCSS 1: Accounting and Finance.

Large blockholders and stock price crash risk: An international study

This study examines the relationship between large blockholders and stock price crash risk across 44 countries. Based on the results, firms held by large blockholders have a lower firm-specific crash risk than widely held firms. In this case, the higher the proportion of voting rights, the lower the risk. In addition, the negative association is more pronounced in firms undertaking overinvestment activities. The findings also suggest that large shareholders serve as monitors in firms, reducing agency costs and leading to lower stock price crash risk. Meanwhile, this mitigating effect is stronger in firms held by a family, another widely held corporation, and the state. Conversely, the results show no such effect in firms held by a large institutional investor. Finally, the relationship is more pronounced in developed countries and in English common law and German civil law countries, thus highlighting the role of large blockholders as a complementary governance mechanism, rather than a substitutive one.

Overconfidence can influence investor behaviours in China

Overconfidence is a common psychological condition defined as the irrational belief that one's chances of success are higher than they really are. The damage that overconfidence can do in the world of finance is even more glaring. Small and medium-sized investors lack the information collection, professional skills, and trend-following behaviour of large shareholders, firm management, and institutional investors. In China, the stock market is dominated by small and retail investors. They lack information and often make a decision based on the limited knowledge and information that they have. Still, owing to hubris, many small and medium-sized investors falsely assume that making money is simple or that they can consistently outperform the market as a whole. Small and medium-sized investors frequently trade to provide liquidity to the market, but their overconfidence often leads them to set unrealistically high-profit targets, incorrectly attribute gains to their operating skills, and fail to adequately account for losses as a result of events outside their control. Transaction costs can eat into earnings. Overconfidence among investors has been shown to increase market risk and volatility.