Active ownership: A crucial role for institutional investors

Globally, institutional investors, such as pension funds, own the bulk of the shares in blue chip compa-nies. Yet, historically they have been hesitant to convert that position into a role as active investors.

This relatively passive approach may hurt growth potential. There is strong empirical research that shows that firms without active owners underperform. Hence, if institutional investors collectively do not take up that challenge, there is a risk that no other have the capacity to undertake that role.

On a promising note, a number of large global investors – and alliances of investors – have recognised that they can play an important role as long-term investors in firms. They spend resources on participat-ing in general meetings, preparing positions, and building alliances among like-minded investors to help the firms to take routes most likely to promote long-term growth.

The strength of that movement towards more engaged owners will not only be the result of the prefer-ences of institutional investors; the regulatory environment also plays an important role. We discuss some of the important elements in this note.

This discussion note was prepared in connection with a seminar on active ownershíp hosted by Copenhagen Economics and the research center PeRCent in Copenhagen 23 January 2017.

Download the two presentations from the seminar