US institutional investors now control about 60 percent of the outstanding stock of the largest 1,000 US corporations. Data from The Conference Board show, however, that control is more and more concentrated among the largest 25 institutions.
At the end of 1997, institutional investor control of the largest 1,000 US corporations had risen to 59.9 percent – up from 46.6 percent in 1987. The high concentration commonly seen today was rare in the US ten years ago. In 1987, only 10.7 percent of the top 1,000 companies had institutional ownership above 70 percent; by 1997, 38.9 percent were more than 70 percent controlled by institutions.
While the rate of institutional equity ownership has been increasing in the US, it is still lower than in the UK where institutions control slightly more than 75 percent of outstanding equity. In France and Germany, financial institutions and corporate cross-shareholders taken together account for 60 percent of the French equity market and just under 40 percent of Germany’s.
Aggregate concentration data, however, mask the fact that more and more of the US equity market is being managed by the largest 25 institutions. These controlled 19.7 percent of total outstanding equities in 1997, up from 16.7 percent in 1996. The largest 25 institutions also managed 40.9 percent of the total amount of equities under management by all types of institutional investors in 1997, up from 38.6 percent in 1996.
While the largest five institutional investors held only 8.5 percent of the stock in the top 25 US companies in 1985, by 1997 they increased their share to 12.8 percent. Although the largest 25 institutions managed only 19.8 percent of the stock in the largest 25 corporations in 1985, they controlled 28 percent of that stock by 1997.
Money managers continue to have the hands-on control of the largest share of institutionally-owned stock in the top 25 companies. They controlled only 10.9 percent of the stock of the largest 25 in 1985; 15.4 percent in 1995; and 18.3 percent by 1997. Banks, meanwhile, have experienced a fall-off, managing only 13.2 percent in 1997, down from 17.5 percent in 1995.
International comparisons
While their power is growing considerably, the top US institutions have more control over the stock of the largest companies than do purely financial institutions in France and Germany, but not in the UK. But if non- institutional shareholders with cross-shareholdings in corporations are included then France is the most highly concentrated market. In France, 48.3 percent of the equity of the largest 25 corporations is controlled by the largest 25 shareholders, followed by Germany (47.2 percent), the UK (44.1 percent) and then the US (28.0 percent). But with institutional investor financial assets running at $13 trillion in the US, against $2 trillion in the UK and about $1.3 trillion in each of France and Germany, US institutions have a serious kind of clout, regardless of their lower concentration levels.
Dr Carolyn Kay Brancato is director of The Conference Board’s Global Corporate Governance Research Center.
