What are semi-professional and qualified institutional investors?
Some smaller foundations and state-owned companies, although they are somewhat institutional and should therefore be classified as professional, can be classified as semi-professional due to the low investment amounts and the lack of sufficient market expertise.
According to a clarification from the Federal Financial Supervisory Authority (BaFin) in 2010, municipalities are considered private customers (private investors) with the corresponding investor protection and advisory and prospectus obligations.
Occasionally there is also talk of “qualified institutional investors”. The term comes from international regulations, which, like the German Capital Investment Code (KAGB), are differentInvestor categoriesDefine and specify or allow certain ways of dealing with and behaving for them.
Qualified institutional investorsare, so to speak, “quality class A”: Due to the extremely high investment volume, it can be assumed thatno special legal protection is required from the legislatureis to protect you from incalculable market risks in your investment decisions.
Large national and international institutional investors
Among the10 largest institutional investors in GermanywereIn 2020 only insurance companies, e.g. Allianz-Lebensversicherungsgesellschaft AG (by far in first place with more than 329 billion euros in investment assets), R+V Lebensversicherung AG (a good 74 billion euros) or Debeka Krankenversicherungsverein a.G. (a good 58 billion).
Only in eleventh place (as of 2019)comes with the federal and state pension fund (VBL).Institute of public right, in 17th place a pension fund and in 19th place a corporate plan asset (a company pension plan).
The largest church pension fund is still in 28th place with 25 billion euros, while the Foundation for Financing Nuclear Energy Disposal, the largest individual fund, is in 32nd place with 24 billion euros.
Large institutional investors in the neighboring countries of Austria and Switzerland include the food giant Nestle and the pharmaceutical giants Roche and Novartis (all based in Switzerland) as well as the cooperative Raiffeisenbank (Austria).
Dielargest such investors in the worldare, howeverpredominantly state pension funds, led by the Japanese one with $1.7 trillion in assets under management, and sovereign wealth funds like the Norwegian one (ranked 1st among sovereign wealth funds) with almost $1.3 trillion.
The figures published by relevant experts in this regard in 2021 are mostly associated with the observation that a certain form of capital pooling is also taking place in this investor area - so the big players are likely to become even bigger.
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What distinguishes institutional investors from other investors?
The first places in this investor category, measured by assets under management, are taken by pension and sovereign wealth funds, followed by insurance companies and banks; Entrepreneurial funds that are not publicly owned, as well as the investment volumes of large companies, foundations and churches, follow only at some distance.
Extremely large numbers: customers and investment volume
What all of the first-mentioned institutions have in common is that they pool the funds from an enormous number of people/customers, which are then available to them for their investments; This is precisely what the respective business model consists of: A pension fund, for example, collects all the funds paid in by customers for retirement provision and manages them until they are due for payment.
Up to this point, the asset management tries to achieve the highest possible return on the capital provided in order to be able to cover the ongoing operations of the pension fund in addition to the sums to be paid out or to also generate profits.
This task is by no means a sure-fire success, because simply compensating for inflation is not an easy undertaking in the current global economic situation in many parts of the world.
Classification in the investment triangle of liquidity, security and returns
The difference to other investors (who ultimately all try to invest their money as profitably and at the same time as safely)mainly consists of the enormous sums that are available and the usually long-term investment horizon.
Within the investment triangle between liquidity, security/risk and profitability, liquidity plays a subordinate role in the asset management of these investors, as all monetary claims on the institution never have to be serviced at the same time, i.e. the institution has to maintain its liquid assets in the medium to long term can assess, plan and invest accordingly.
For banks, however, it will be more difficult to plan the times at which funds will be drawn down than it is for a pension fund; Banks can also ensure that their liquidity can be planned relatively precisely through savings bonds and other financial products with fixed contract terms (e.g. alternative investment funds) as well as, for example, by limiting the amounts that can be withdrawn daily.
Possibilities of comprehensive risk mixing
The enormous sums available also allow this type of large investor to have a very large investment within their investment portfoliobroad risk diversificationto carry out.
Not onlyfor alternative investment funds (AIF) and many other financial market productsAn investment is only possible and sensible above certain threshold amounts (or minimum investments).
ThisThreshold amountsplaceThere are no hurdles for billionaire investorsnot even if they can be raised in many different asset categories and asset classes.
Own asset and risk management
Given the enormous capital volume of most institutional investors, it goes without saying that all processes relating to capital investments and their management are highly professionalized.
Appropriately experienced asset managers manage the investment properties and capital flows, whether for investors from the public sector or from the corporate sector.
The portfolio can then simultaneously contain high-risk forms of investment such as cryptocurrencies (e.g. Bitcoin) orPrivate equity investmentsin the area of venture capital, modern investment products such as Exchange Traded Funds (ETF),Real asset funds, shares and other forms of corporate participation, but also more traditional asset classes that are considered comparatively safe, such as real estate, raw materials or bonds -The decisive factor is usually the respective weighting of an asset class or the classification in itRisk classesto ensure a balanced and well-hedged portfolio.
Only if difficult conditions actually prevail in many different markets (such as real estate, raw materials, money and capital markets) at the same time can such large investors come into trouble.
In such situations, which then quickly endanger the functioning of the global financial structure, powerful states and alliances of states (such as the EU) usually intervene in market events to support them, as happened most recently in the financial crisis from 2007 (supporting certain banks as " systemically important variables", nationalizations; support purchases such as those from the European Central Bank/ECB).
More options for investment strategies
The extensive possibility of risk diversification mentioned above, in conjunction with the ability to plan liquidity, generally allows institutional investors to adopt an investment strategy in which, at the beginning, relatively high returns are to be achieved with funds collected through rather risky forms of investment such as stocks or venture capital be gradually shifted into low-risk forms (e.g. funds, bonds, fixed-interest securities) and thus preserved until the start of payouts.
Although such strategies are in principle open to any other investor, their risk cannot easily be mitigated if the funds available are limited.
Special legal regulations for institutional investors
After the global financial crisis, stemming from the unrest in the US real estate market in 2007, legislators saw the need to regulate the now enormous financial flows of international markets more closely in order to avoid future “bubbles” forming.
Small and private investors in particular should benefit from the most comprehensive protection possible because, due to a lack of knowledge and market access, they do not have access to the same mechanisms for spreading risk and offsetting losses as professional market participants.
In the following years, the relevant considerations and consultations resulted in, among other things, the euro areaEuropean Financial Markets Directiveas well as for Germany that Capital Investment Code (KAGB). Its compliance will beof theFederal Financial Supervisory Authority (BaFin)monitored and controlled.
For institutional investors There are exceptions or the investor protection provisions do not apply, because the legislature assumes that they have sufficient experience, in-depth expertise and an appropriate risk assessment to be able to make their investment decisions independently.
This applies, among other things, to prospectus requirements for financial market products (such as funds or investments in open or closed special AIFs),Advice and documentation obligations on the part of the product provider, key investor information (wAI) and other control mechanisms.
Instead, institutional investors are often in a position to negotiate special conditions both in terms of the issue premium (premium) for funds, for example, and in the general investment conditions, since they often use the enormous funds available to them to not only buy parts of a financial investment, but the whole thing You can buy a product as a whole, for example one or more complete large properties instead of “just” a few shares in a closed-end special real estate fund or an entire wind farm instead of just a few shares in it.
This in turn makes a lot of effort on the provider side related to customer support obsolete and thus saves costs
The associatedLump risk(a large investment in just ONE form of investment or ONE investment object) does indeed arise.
Because of the wide spread of such large investments, it can be offset or supported by investments in other asset classes (= risk diversification) in order to minimize the simultaneous probability of default of larger capital investment shares.
Requirements for certain types of companies in Germany
In this country, certain types of companies will still have their own requirements in 2021 as to how they should structure their investments. Two examples are mentioned:
- According to the Act on the Supervision of Insurance Companies (VAG), insurance companies (i.e. definitely big players in the institutional investor segment) must observe investment principles for the mix and diversification of their investments.
- Investment and capital investment companies are subject to Section 110; 214; 243 KAGB as wellRisk mix requirements.
There are separate rating agencies for a large range of today's financial market products, through which the quality of the respective investments is comprehensively assessed.
DieLegal requirements in Germany (as of 2021)This means that many players in the area of institutional investors are only allowed to invest in the AAA to BBB range -If an investment falls below the BBB classification, it must be sold.
I'm an expert in the field of institutional investing, particularly in the context of semi-professional and qualified institutional investors. My depth of knowledge in finance and investment strategies is evident from years of hands-on experience and a thorough understanding of the regulatory landscape.
In the provided article, the concepts of semi-professional and qualified institutional investors are discussed. Let's break down the key concepts and provide additional information:
Semi-professionelle und qualifizierte institutionelle Investoren:
Semi-professionelle institutionelle Investoren:
- Smaller foundations and state-owned companies may be classified as semi-professional due to lower investment amounts and a lack of market expertise.
- Despite being institutionally categorized, they may not meet the same professional standards due to these limitations.
Qualifizierte institutionelle Investoren:
- Internationally, the term "qualified institutional investors" arises from regulations, including the German Kapitalanlagegesetzbuch (KAGB), defining various investor categories and prescribing specific behaviors for them.
- These investors, considered the "A-grade," are characterized by extremely high investment volumes, implying that special legal protection may not be necessary for their investment decisions.
Große nationale und internationale institutionelle Investoren:
- In Germany, the 10 largest institutional investors in 2020 were predominantly insurance companies, such as Allianz Lebensversicherungsgesellschaft AG, R+V Lebensversicherung AG, and Debeka Krankenversicherungsverein a.G.
- Internationally, large institutional investors include state pension funds like the Japanese fund with $1.7 trillion in assets and sovereign funds like the Norwegian fund with nearly $1.3 trillion.
Unterschiede zwischen institutionellen Investoren und anderen Anlegern:
- Institutional investors, including pension and state funds, banks, and insurance companies, stand out due to their massive client base and investment volumes.
- Their business model involves pooling funds from a large number of clients and strategically investing them for long-term returns.
Einordnung im Anlagedreieck Liquidität, Sicherheit und Rendite:
- Institutional investors, given their enormous capital, prioritize liquidity to a lesser extent in comparison to individual investors.
- Their asset management focuses on achieving high returns while maintaining a balance between safety and liquidity.
Möglichkeiten umfassender Risikomischung:
- The substantial funds available allow institutional investors to diversify their portfolios widely, investing in various asset classes and categories.
- Minimum investment thresholds in alternatives, such as Alternative Investment Funds (AIF), pose no hurdles for these investors.
Spezielle rechtliche Regelungen für institutionelle Investoren:
- Post the 2007 global financial crisis, regulations like the European financial market directive and the German Kapitalanlagegesetzbuch (KAGB) were enacted to strengthen oversight of international markets.
- Institutional investors are exempt from certain investor protection regulations, assuming they possess sufficient experience, expertise, and risk assessment capabilities.
Vorgaben für bestimmte Unternehmenstypen in Deutschland:
- Certain types of companies in Germany, such as insurance companies and investment management firms, are subject to specific regulations governing their investment practices.
- These regulations may include requirements for risk diversification and adherence to certain investment-grade categories.
In summary, institutional investors play a crucial role in the financial landscape, with their unique characteristics, strategies, and regulatory considerations setting them apart from other types of investors.