June 10, 2025 • 6 mins
Are big institutional investors too influential in markets?
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Welcome to Ask Fear and Greed, where we answer questions
about business, investing, economics, politics and more. I'm Michael Thompson
and hello Sean Al.
Speaker 2 (00:11):
Hello Michael, Sean.
Speaker 1 (00:13):
Today's question is a good one. Yes, our big institutional
investors too influential in markets.
Speaker 3 (00:25):
Ah wow, what a vexed question that one.
Speaker 1 (00:29):
There's a bit to this one, there's a lot to it.
Maybe start with some definitions for us. What are we
talking about when we are when we're talking about institutional investors.
Speaker 3 (00:38):
And we're talking about large investors. So you and I
were baby investors. We're talking about the big guys. Stipprenuation
funds is the biggest example, but there's also lots of
managed funds. And when you invest in different organizations that
are not with super otherwise, there's sort of groups in
between you and I, the retail investors and the institutional investors.
They're called well a bunch of them. But let's say
(00:59):
high wealth individuals, family officers. So the Forest family has
billions of dollars, so they're not institutional investors, they're not
retail investors. There's somewhere in between, so that would be
a family office, high net wealth.
Speaker 2 (01:12):
So that's the definition.
Speaker 3 (01:15):
Are there too many, Well, I don't think there's too many,
but do they have too much influence? That's probably a
better way of thinking about it. And maybe so they
run the market. If you've got institutional support, you can
get away with anything. Well that's not true, but you're
(01:37):
doing okay. So let's take the example of Virgin Australia
trying to float it today. Came out with its prospectus. Now,
what it said ahead of that was that it was
fully covered for its capital rays, which has bit under
seven hundred million dollars. That means there's institutional investors that
will pick up all those shares if the allotment for
(01:58):
retail investors isn't picked up.
Speaker 2 (02:01):
The problem is they become too powerful, the institutional shareholders.
Speaker 3 (02:05):
And if you see that sometimes with smaller companies, they
if an institution buys twenty percent of a smaller company
and then decides to sell it, that smaller company's got
nowhere to go.
Speaker 2 (02:15):
Yeah, you know, capital.
Speaker 3 (02:16):
Raisings like the Virgin, the institutions really dominate that. You
also have a bit of a problem with common ownership,
so the same companies always turn up of the same
investors always turn up in different companies and so you
don't get a diversity of thought that.
Speaker 2 (02:31):
Sort of thing.
Speaker 1 (02:32):
When we're talking about super funds, right, and we've spoken
in the past to the Australian Council of Superannuation Investors,
and this is a big group of super funds that
own between them a very large stake in pretty much
every ASX two hundred company.
Speaker 2 (02:49):
Yes, right, And.
Speaker 1 (02:50):
They talk about the conversations that they have with management
of these companies that it is not just how they
are influencing the companies through buying and selling them, but
also through the access that they have to those companies,
the conversations that they have and are able to kind
of make their wishes known to them.
Speaker 3 (03:14):
That is a great argument for the big institutions. And
the great example is the shift to renewables. So the
pressure that's put on the banks, for example, by the
institutional shareholders to make sure the banks are aiming for
net zero or woodside in Santos all and gas companies
for that matter, those institutional investors can do that. I
suppose the crux of it, our institutional investors influence disproportionate
(03:41):
to what it should be given our economy and that's
a gray line. And you know, when you've got Australian
Retirement Trust, Aussie super these organizations spending hundreds of billions
of dollars investing, they have a huge amount of influence.
They can do things as you were saying, and talk
to management, get the ins and outs, make good investment decisions.
(04:05):
You want to make sure that a bunch of them
are talking to management. You don't want just one organization
because then they do you know, what they say goes,
and that's not particularly healthy.
Speaker 2 (04:14):
But so that is good. But do they have too
much power?
Speaker 3 (04:18):
And it's really easy to make an argument that they
do because what you and I think probably doesn't matter
that much.
Speaker 1 (04:25):
But then again, we are typically investors through our super
funds anyway, so that they are still representing our views
perhaps through our superfund.
Speaker 3 (04:35):
Yes, I mean that's democracy. I mean anythinghow and easy
as the Prime minister because I voted or I didn't
vote for him, because I voted or didn't vote for
my local member. In fact, I think we even had
an able candidate my lectorate. So you get the gist
of what I'm saying. So I think it's really good
to have a strong superinnovation sector. An outcome of that
(04:57):
is big institutional investors.
Speaker 2 (05:00):
So you sort of have to put up with it.
Speaker 1 (05:01):
Okay, it's a good one though, isn't it.
Speaker 2 (05:03):
And there's no right answer. It depends where you're coming from.
Speaker 3 (05:06):
And so you know, there are activist investors, guys like
Jeff Wilson, who from Wilson Asset Management, who will the
current three million dollars superannuation tax that they're talking about.
So he's very active in that particular issue. Now he's
not in well maybe Jeff is an institutional investor, but
he's kind of somewhere in the middle. And I think
(05:26):
when you have really active people talking about that stuff,
I think that's a really really good thing. Previously he's
been reactive against for or against Meyer and some of
those sorts of companies as well, So I think it's good.
You just don't want any one organization to have a
disproportionate amount of power.
Speaker 1 (05:43):
It does transparency matter then in this that you can
see what the issues are and where the money is going.
As long as you can see where it is going,
then you can at least understand the influence that's happening
behind the scenes.
Speaker 3 (05:55):
Yes, the flip side to that, though, is if you
are a big institutional investor, get access to management.
Speaker 2 (06:01):
If someone owns five percent of my company, I'm going
to talk to them.
Speaker 3 (06:05):
You or I point zero five percent of the company,
we don't get a look in, and so they're kind
of getting information that we're not getting. Now, that's not
supposed to happen. It's everyone or shareholders should be treated equally.
Speaker 2 (06:17):
In that sense.
Speaker 3 (06:19):
But if they've got a one on one with them, see, yeah,
well they're going to know more about the company than
you or I who are just reading the reports.
Speaker 1 (06:26):
Oh this is a good one.
Speaker 2 (06:27):
We could go on forever.
Speaker 1 (06:28):
We might have to have a part to our first
ever Ask Fear and Greed. Anyway, thank you very much, Sean,
thank you, Michael. All right, and if you've got your
own question, then please send it on through via fearangreed
dot com to au or any of the social media
platforms Instagram, LinkedIn Facebook. We will get your messages on there.
We will put your question on the list. I'm Michael
Thompson and this was Ask Fear and Greed.
Welcome to Ask Fear and Greed, where we answer questions
about business, investing, economics, politics and more. I'm Michael Thompson
and hello Sean Al.
Speaker 2 (00:11):
Hello Michael, Sean.
Speaker 1 (00:13):
Today's question is a good one. Yes, our big institutional
investors too influential in markets.
Speaker 3 (00:25):
Ah wow, what a vexed question that one.
Speaker 1 (00:29):
There's a bit to this one, there's a lot to it.
Maybe start with some definitions for us. What are we
talking about when we are when we're talking about institutional investors.
Speaker 3 (00:38):
And we're talking about large investors. So you and I
were baby investors. We're talking about the big guys. Stipprenuation
funds is the biggest example, but there's also lots of
managed funds. And when you invest in different organizations that
are not with super otherwise, there's sort of groups in
between you and I, the retail investors and the institutional investors.
They're called well a bunch of them. But let's say
(00:59):
high wealth individuals, family officers. So the Forest family has
billions of dollars, so they're not institutional investors, they're not
retail investors. There's somewhere in between, so that would be
a family office, high net wealth.
Speaker 2 (01:12):
So that's the definition.
Speaker 3 (01:15):
Are there too many, Well, I don't think there's too many,
but do they have too much influence? That's probably a
better way of thinking about it. And maybe so they
run the market. If you've got institutional support, you can
get away with anything. Well that's not true, but you're
(01:37):
doing okay. So let's take the example of Virgin Australia
trying to float it today. Came out with its prospectus. Now,
what it said ahead of that was that it was
fully covered for its capital rays, which has bit under
seven hundred million dollars. That means there's institutional investors that
will pick up all those shares if the allotment for
(01:58):
retail investors isn't picked up.
Speaker 2 (02:01):
The problem is they become too powerful, the institutional shareholders.
Speaker 3 (02:05):
And if you see that sometimes with smaller companies, they
if an institution buys twenty percent of a smaller company
and then decides to sell it, that smaller company's got
nowhere to go.
Speaker 2 (02:15):
Yeah, you know, capital.
Speaker 3 (02:16):
Raisings like the Virgin, the institutions really dominate that. You
also have a bit of a problem with common ownership,
so the same companies always turn up of the same
investors always turn up in different companies and so you
don't get a diversity of thought that.
Speaker 2 (02:31):
Sort of thing.
Speaker 1 (02:32):
When we're talking about super funds, right, and we've spoken
in the past to the Australian Council of Superannuation Investors,
and this is a big group of super funds that
own between them a very large stake in pretty much
every ASX two hundred company.
Speaker 2 (02:49):
Yes, right, And.
Speaker 1 (02:50):
They talk about the conversations that they have with management
of these companies that it is not just how they
are influencing the companies through buying and selling them, but
also through the access that they have to those companies,
the conversations that they have and are able to kind
of make their wishes known to them.
Speaker 3 (03:14):
That is a great argument for the big institutions. And
the great example is the shift to renewables. So the
pressure that's put on the banks, for example, by the
institutional shareholders to make sure the banks are aiming for
net zero or woodside in Santos all and gas companies
for that matter, those institutional investors can do that. I
suppose the crux of it, our institutional investors influence disproportionate
(03:41):
to what it should be given our economy and that's
a gray line. And you know, when you've got Australian
Retirement Trust, Aussie super these organizations spending hundreds of billions
of dollars investing, they have a huge amount of influence.
They can do things as you were saying, and talk
to management, get the ins and outs, make good investment decisions.
(04:05):
You want to make sure that a bunch of them
are talking to management. You don't want just one organization
because then they do you know, what they say goes,
and that's not particularly healthy.
Speaker 2 (04:14):
But so that is good. But do they have too
much power?
Speaker 3 (04:18):
And it's really easy to make an argument that they
do because what you and I think probably doesn't matter
that much.
Speaker 1 (04:25):
But then again, we are typically investors through our super
funds anyway, so that they are still representing our views
perhaps through our superfund.
Speaker 3 (04:35):
Yes, I mean that's democracy. I mean anythinghow and easy
as the Prime minister because I voted or I didn't
vote for him, because I voted or didn't vote for
my local member. In fact, I think we even had
an able candidate my lectorate. So you get the gist
of what I'm saying. So I think it's really good
to have a strong superinnovation sector. An outcome of that
(04:57):
is big institutional investors.
Speaker 2 (05:00):
So you sort of have to put up with it.
Speaker 1 (05:01):
Okay, it's a good one though, isn't it.
Speaker 2 (05:03):
And there's no right answer. It depends where you're coming from.
Speaker 3 (05:06):
And so you know, there are activist investors, guys like
Jeff Wilson, who from Wilson Asset Management, who will the
current three million dollars superannuation tax that they're talking about.
So he's very active in that particular issue. Now he's
not in well maybe Jeff is an institutional investor, but
he's kind of somewhere in the middle. And I think
(05:26):
when you have really active people talking about that stuff,
I think that's a really really good thing. Previously he's
been reactive against for or against Meyer and some of
those sorts of companies as well, So I think it's good.
You just don't want any one organization to have a
disproportionate amount of power.
Speaker 1 (05:43):
It does transparency matter then in this that you can
see what the issues are and where the money is going.
As long as you can see where it is going,
then you can at least understand the influence that's happening
behind the scenes.
Speaker 3 (05:55):
Yes, the flip side to that, though, is if you
are a big institutional investor, get access to management.
Speaker 2 (06:01):
If someone owns five percent of my company, I'm going
to talk to them.
Speaker 3 (06:05):
You or I point zero five percent of the company,
we don't get a look in, and so they're kind
of getting information that we're not getting. Now, that's not
supposed to happen. It's everyone or shareholders should be treated equally.
Speaker 2 (06:17):
In that sense.
Speaker 3 (06:19):
But if they've got a one on one with them, see, yeah,
well they're going to know more about the company than
you or I who are just reading the reports.
Speaker 1 (06:26):
Oh this is a good one.
Speaker 2 (06:27):
We could go on forever.
Speaker 1 (06:28):
We might have to have a part to our first
ever Ask Fear and Greed. Anyway, thank you very much, Sean,
thank you, Michael. All right, and if you've got your
own question, then please send it on through via fearangreed
dot com to au or any of the social media
platforms Instagram, LinkedIn Facebook. We will get your messages on there.
We will put your question on the list. I'm Michael
Thompson and this was Ask Fear and Greed.
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