institutional shareholder

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A shareholder which is itself a company rather than an individual. Because small amounts of capital can only be used to hold shares either by concentrating on a few securities, which involves high risk, or buying very small holdings, which involves high transaction costs, an increasing proportion of individual investors choose to hold shares via institutions. These may be unit trusts, investment trusts, pension funds, or insurance companies selling with-profits life policies. Institutional shareholders may act as relationship investors, seeking a voice in the management of the companies whose shares they own, but usually adopt a passive role and refrain from participation in management decisions.

Subjects: Economics.

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