This chapter presents an overview of the institutional investor landscape. It outlines the role and main types of institutional investors, including the distinction between active and index-based strategies. The chapter provides quantitative data on institutional investor ownership in public equity markets, covering the holdings of asset managers and asset owners, the concentration of ownership at the company level, cross-jurisdiction differences between domestic and foreign investors, and recent trends in assets under management among the largest asset manager firms. It also examines the structure of investment funds, including the relative shares of non-index and index-based management across asset classes, the jurisdictions in which funds are domiciled, and the growth of sustainable funds compared with traditional funds.
Institutional Investor Engagement and Stewardship
Abstract
Institutional investors encompass a large variety of entities that manage and own assets. Asset owners are a group of institutional investors who may invest their assets directly and/or through asset managers. Asset owners include entities such as insurance companies, public and private pension funds, and sovereign wealth funds, among others. Asset managers manage assets on behalf of other entities and individuals. Depending on the regulatory context and their strategies, asset managers include investment advisors, hedge funds and private equity firms, among others.
Institutional investors’ significance in today’s capital markets makes them key contributors to capital market efficiency and integrity. They can enhance price discovery, streamline capital allocation and encourage discipline from companies’ management and key executives.
Institutional investors are distinguished from other types of investors in at least three ways. First, they have a larger scale than retail investors and, therefore, tend to have a more sophisticated investment decision‑making process. Second, their scale and professionalisation may also allow them to extend their investment activities beyond domestic public markets, reaping the benefits of greater portfolio diversification. Third, unlike other large investors, such as holding companies and governments, institutional investors are typically more diversified and seldom own controlling equity stakes in companies.
The current institutional investor landscape shows large institutions holding significant portions of capital in listed companies across markets. At the same time, to enhance performance while reducing costs, and supported by technological advances, there has been a shift among institutional investors towards the inclusion of index investment strategies within their portfolios.
Over recent years, institutional investors have become crucial public equity owners in most advanced markets. As of 2024, asset managers hold 65% and 59% of the listed equity in the United States and the United Kingdom, respectively (Figure 1.1). They hold at least 30% of the listed equity in Canada, Denmark, Ireland, Japan, the Netherlands, Sweden and Switzerland. The increased ownership by asset managers is also visible in emerging markets such as South Africa (28%), Brazil (23%) and India (21%). Moreover, asset owner institutions hold 41% of the listed equity in Luxembourg, 38% in Iceland, and at least 10% in Argentina, Belgium, Finland, Norway and South Africa.
Note: The figure includes all OECD, G20 and FSB members, except Costa Rica and the Russian Federation (hereafter “Russia”).
Source: OECD Capital Market Series dataset, FactSet, LSEG, Bloomberg.
Institutional investor ownership is characterised by a high level of concentration, although the degree varies across markets. In smaller markets, such as Estonia, Latvia, Lithuania, Luxembourg and the Slovak Republic, the largest institutional investor in each company owns more than 70% of the institutional investor equity holdings on average (Figure 1.2). In more developed markets such as the United Kingdom and the United States, institutional ownership presents high concentration levels considering the largest 20 institutional investors in each company. Similarly, while in Canada the largest institutional investor holds 7% of the equity on average (15% of the total institutional investor holdings), the largest 20 institutional investors own 33% of the equity holdings (68% of the total institutional investor holdings).
The trend of institutional investors becoming larger public equity owners over recent years raises important questions about the effectiveness of their engagement with listed companies because of the differing levels of equity ownership concentration across markets. In markets such as the United Kingdom and the United States, where several institutional investors are large public equity owners (Figure 1.1), they may have greater leverage and more financial incentive to influence corporate governance, strategy and sustainability practices at investee companies. In markets where institutional investor equity ownership is relatively low, there may be barriers to engagement between institutional investors and listed companies, for example, due to the presence of the public sector as a shareholder. This may result in institutional investors having less leverage to influence company decision-making.
Source: OECD Capital Market Series dataset, FactSet, LSEG, Bloomberg.
Non-domestic ownership is prominent in most markets. In 76% of OECD, G20 and FSB economies, the share held by domestic institutional investors is smaller than the share held by their non‑domestic counterparts. Notable exceptions include Argentina, China, South Africa and the United States, where domestic institutional investors own larger equity shares than non‑domestic ones (Figure 1.3). Most non‑domestic institutional investor ownership is attributed to UK and US-domiciled investors. However, other non‑domestic institutional investors also hold important positions across some markets. For instance, asset managers domiciled in France are significant investors in Belgium, Ireland, the Netherlands, and Spain. The same holds true for Germany‑domiciled asset managers who hold large stakes in Latvia, and for asset managers domiciled in Hong Kong (China) holding major stakes in China. Among asset owner institutions, a noteworthy example is Norway’s Sovereign Wealth Fund, which holds meaningful equity stakes in approximately 70 markets outside of Norway (NBIM, 2025[1]).
Source: OECD Capital Market Series dataset, FactSet, LSEG, Bloomberg.
Institutional investor ownership in public equity markets shows significant concentration. This trend is mirrored in the assets under management (AUM) of the world’s largest asset managers, regardless of the asset class involved. Over the last decade, the AUM of the largest 20 asset managers (for which data is available) have increased 84%, rising from USD 30 trillion in 2015 to USD 56 trillion in 2024 (Figure 1.4). In 2015, the AUM of the top 20 asset managers accounted for 32% of the AUM of all financial institutions; in 2024, this share rose to 38%.
Source: Bloomberg, LSEG, OECD calculations.
Active investors are directly involved in selecting which individual financial assets or categories of assets have an expected return that differs from the market expectations, aiming to generate profits by buying, holding and selling these assets. Index investors typically adopt an investment approach that involves high diversification and a low fee structure. Often, they aim to mirror broader market trends instead of outperforming them. Index investors, who cannot divest from individual holdings, strive to select the optimal portfolio based primarily on publicly available market prices and a predefined index. The broader categories of “active” and “index” investors, however, hide several different strategies and business models, including with respect to levels of diversification, analysis of a company’s fundamentals, investment horizons and willingness to engage with investee companies (Table 1.1).
“Active investors” are a highly heterogeneous group of investors. For instance, they may include private equity funds with very low diversification, decisions based on time horizons extending over several years and engagement that possibly includes the participation of private equity executives on the board of investee companies. At the other extreme, active investors include high-frequency traders with low diversification, no analysis of companies’ fundamentals, an investment horizon of less than one second and, evidently, no engagement with investee companies.
Hedge funds are active investors located between the two abovementioned extremes, performing a key role in monitoring and engaging with listed companies. Hedge funds undertake activism by using their minority stakes, engagement and voting to pressure management at investee companies to change their corporate policies and governance to improve financial performance (Brav, Jiang and Li, 2021[2]). Even the possibility of being targeted by hedge funds for engagement may already make companies improve their governance and business (Gantchev, Gredil and Jotikasthira, 2019[3]). Hedge funds often rely on support from other institutional investors to drive change and boost returns (Becht et al., 2017[4]). In 2021, the hedge fund Engine Number 1, with less than a 0.02% stake in Exxon Mobil, won a proxy fight, securing three board seats. This success came from persuading large institutional investors, including index funds and pension funds, to back its nominees (Kaufmann, Kulatilaka and Mittelman, 2023[5]).
“Index investors” embark on a relatively more straight-forward category of investors committed to maintaining a portfolio replicating a predefined index where portfolio adjustments occur automatically in response to index composition and price changes (Çelik and Isaksson, 2014[6]). The level of diversification will depend on the composition of the index, but the most used indexes are large‑capitalisation benchmarks with many companies.
Importantly for the scope of this report, whether the institutional investor votes and engages with investee companies may be seen, in some cases, as an optional service proposed by the institutional investor. Clearly, investors focussing on the valuation of individual assets already have a “sunk cost” of analysing the business of the investee companies, and, therefore, voting and engaging with them may in some cases represent relatively low marginal costs to meet companies and attend shareholder or bondholder meetings. Conversely, for other active investors and all index investors, voting and engaging also includes the cost of researching the investee company to form a position when voting and engaging.
In addition to being optional, the “service” of voting and engaging is not homogeneous. There is a spectrum of well-informed stewardship on one side and no stewardship at all on the other, but notably, there is also the possibility of exercising shareholder rights in line with proxy advisors’ recommendations. In relation to this mid-point, there are two specific issues to consider. First, as explored more in detail below in this report, proxy advisors themselves may engage with companies before providing their advice on how investors may prefer to vote and, therefore, proxy advisors may be seen in some cases as “de facto” representatives of some institutional investors (at least those that follow more closely the recommendations of proxy advisors based on benchmark policies). Second, and that is why double arrows are used in the last row of Table 1.1 above, institutional investors may rely more or less critically on the advice received from proxy advisors (institutional investors who rely more on their own assessment and policies would be closer to the extreme of “well‑informed stewardship”).
Some institutional investors may use engagement providers to undertake engagement on their behalf with listed companies. The services engagement providers offer can vary; however, for the purpose of this report, they are broadly defined as an entity appointed to engage with listed companies on behalf of institutional investors (PRI, 2021[7]). Institutional investors may use engagement providers to bring greater expertise (particularly on sustainability-related risks and opportunities) and limit costs associated with engagements.
Institutional investors using engagement providers raises some challenges, the most significant being the risk of misaligned incentives because of compensation structures. Common compensation structures for engagement providers include volume and subscription-based fees. Volume‑based engagement refers to the number of engagements undertaken with investee companies. Subscription fees are where institutional investors pay a regular fixed fee to access a range of engagement-type services. In either case, engagement providers may have the incentive to focus on light touch or superficial engagement with companies rather than well-informed engagement which can be time and resource intensive.
Similarly, the compensation of institutional investors, particularly asset managers, is typically structured depending on whether they are active or index investors, which will affect their incentives when engaging with investee companies. Active investors typically receive significant remuneration if they can perform better than the relevant benchmark, which gives them a dual incentive to wisely select securities and engage effectively with investee companies. The decision on whether to engage will be more due to the costs of engaging and the possibility of being effective, such as the existence of a controlling shareholder or a receptive board. While some index investors maintain a policy for engagement, the benefit for index investors to engage is less obvious. Their AUM will indeed be higher if they engage effectively with their major investee companies, slightly increasing the related fixed fees they receive, but given index investors are highly diversified, any benefits would not be meaningful.
Some asset owners have tried to find a solution to the abovementioned challenge. For example, the Government Pension Investment Fund (GPIF) in Japan experimented with remuneration structures for several of their index asset managers to incentivise greater engagement with Japanese listed companies to achieve sustainable growth of the overall market through stewardship activities (GPIF, 2024[8]). When index asset managers were awarded an additional mandate and fee structure to engage, in addition to investing and managing equity investments, there were improvements in some of the Environmental, Social and Governance (ESG) scores for Japanese listed companies (Becht et al., 2023[9]; Financial Times, 2023[10]).
The rapid expansion of investment funds, particularly after the global financial crisis, has been led by factors such as a retraction in bank financing, changes in regulatory frameworks, technological advancements and a prolonged low-interest rate environment (Singh and Surti, 2021[11]). In 2024, the managed assets of investment funds, including open‑end and exchange‑traded funds, amounted to USD 65 trillion, a 76% increase from USD 37 trillion in 2015.
Today, index investment strategies, which account for USD 26.7 trillion of assets under management, concentrate the bulk of their investments in equity, which totals almost 80% of the assets under management, and in fixed income with 18%. While in 2015 non-index funds were 3.6 times larger than index-linked investment funds, in 2024 this ratio stood at 1.4.
Non-index investment funds total USD 38.3 trillion of the total AUM within the investment fund sector (Figure 1.5, Panel A). Non-index funds allocate almost 40% of their assets to equity investments, followed by fixed-income securities (37%) and multi‑asset allocation (20%) (Figure 1.5, Panel B).
Source: Morningstar Direct, OECD calculations.
Nearly half of the investment funds are domiciled in the United States, collectively managing USD 30.5 trillion in assets. Within these US‑domiciled funds, 47% are non-index funds, while 53% adopt an index investment approach (Figure 1.6). Following the United States, investment funds domiciled in China, Luxembourg, and Ireland manage assets ranging from USD 3.3 trillion to USD 14.4 trillion in each market. However, the investment strategies of these funds differ from those of US‑domiciled investment funds. For instance, in Luxembourg, 88% of the funds are non-index funds and, in Ireland, this share stands at 40%.
Note: The figure includes all OECD, G20, and FSB members, except Costa Rica, Czechia, Greece, Hungary, India, Poland, the Slovak Republic, Slovenia and Russia.
Source: Morningstar Direct, OECD calculations.
When looking at the evolution of the assets under management of funds with sustainability objectives or criteria over the past decade, two periods appear, with a higher average in post‑2020 years (oscillating between USD 2.7 and USD 3.7 trillion) than in years prior (fluctuating between USD 1.3 and USD 1.9 trillion). Yet, that rise has been slowing in recent years: these funds had USD 3.4 trillion worth of AUM at the end of 2024, slightly below the 2021 peak. In addition, when looking at funds with sustainability objectives or criteria as a share of all funds in terms of AUM, the progression has been modest throughout the decade, rising from 3.4% in 2015 to 5.2% in 2024 (Figure 1.7).
Note: Funds with sustainability objectives or criteria here refer to funds considered to be sustainable investment products. A fund will be considered a sustainable investment product if in the prospectus or other regulatory filings it is described as focussing on sustainability, impact investing, or environmental, social or governance factors. Funds must claim to have a sustainability objective, and/or use binding ESG criteria for their investment selection. Funds that employ only limited exclusions or only consider ESG factors in a non-binding way are not considered to be sustainable investment products.
Source: Morningstar Direct, OECD calculations.