Mutual funds and other institutional investor shave remained fundamentally committed to the same investment policies they were adopting prior to the credit crisis,
“For decades, institutional investors had been shifting their allocation preferences from fixed income securities into equity,” noted Matteo Tonello, associate director of corporate governance at The Conference Board. “Then last year came, and it had a devastating effect on institutions’ expanded equity portfolios.”
At the end of last year, institutions had only 36.6% of their assets in equities, down from 47.2% the year before—but the change was driven by market declines rather than changes to investment policies, Tonello said.
In aggregate, institutional assets fell 21.3% in 2008 to $22.25 trillion. Mutual funds and other investment companies, which had seen the fastest growth in the last few decades, were hit the hardest by the market decline and capital withdrawals, with outflows totaling $2.5 trillion for the year, or 30.7% of their 2007 asset value. By comparison, pension funds lost 24.7% of their 2007 asset value and insurance companies experienced a 7.8% contraction.
