Table 8.- PROJECTED MARKET VALUES FOR STOCK HOLDINGS OF FINANCIAL INSTITUTIONS 1 Data from United States, Securities and Exchange Commission, Source: Robert M. Soldofsky, Institutional Ownership of Com“Statistical Series,” Release No. 2358, May 1, 1969, p. 5, table 3. mon Stock: 1900-2000 (Ann Arbor, Mich.: Bureau of Business, * For widely held companies only including both common and Graduate School of Business, University of Michigan, 1971), p. 209. preferred stocks. GROWTH PATTERNS amined. Changes in the legal and financial environments affecting each of these groups were examined and recent Growth patterns for noninsured corporate pension and prospective developments were considered. Table 8 funds, regulated investment companies, state and local includes the percentage of the total market value of stocks pension funds, life insurance companies, property and held by each institution in 1968 and the corresponding casualty insurance companies, university and college en projected percentages for 1980 and 2000. The growth dowments, foundations and common trust funds were ex- rates utilized also are shown in the table. Table 9.-ESTIMATED HOLDINGS OF NYSE LISTED STOCKS BY SELECTED INSTITUTIONAL INVESTORS (EXCLUDING BANK-ADMINISTERED PERSONAL TRUST FUNDS) (Dollar amounts in billions) Source: Freund, William C., and David F. Minor, “Institutional Activity on NYSE: 1975 and 1980," Perspectives on Planning, NYSE, No. 10, June 1972, p. 2. Growth Paths Projected parisons of the straight lines, from 1968 through 1972, Figures 1 and 28 show the projected growth paths from with the actual results suggest the success and errors of the 1968 base data; these figures differ in that Figure 1 the projections. (Straight lines on these semi-logarithm carries the projections to 1980 only and Figure 2 carries charts represent constant growth rates.) The projections them to 2000. The differences in the clarity of the detail for the total market value of all stocks, noninsured pension and perspectives make each of these figures useful. Both funds, and property and casualty insurance companies figures present actual stock holding for each institution have worked out rather well to date. The projections for at the end of each year from 1960 through 1972. At the mutual funds are much higher than their 1972 year-end date that the original projection was made, the actual value, and the projections for life insurance companies values for 1968 through 1972 were not available. Com- and state and local retirement funds are substantially See Appendix D, pp. 373–374. below their projected levels. STATE REGULATIONS LIBERALIZED funds and estates were included in institutional holdings, the 1968 percentage would have been increased about When projections are not confirmed by experience, they 12.7 percentage points to a total of 35.9 percent. By 1980, should be changed. Whether or not the change in the 20- institutional holdings including personal trust funds and year growth pattern of mutual funds will be permanent or estates administered by banks may be approaching 50 temporary is still an open question. A part of the more- percent of the entire market value of stocks. rapid-than-projected growth for life insurance companies may be due to the success of variable annuities, and PROJECTIONS STILL REASONABLE continued liberalization of state regulations governing the percentage of their assets that may be held in the form of The projections made several years ago for 1980 stock. The increase in the sales of variable annuities may institutional holdings of stock still appear to be quite be reducing the total market values for mutual funds reasonable and the path marked from 1968 through 1972 because the former may be a rather good substitute for leads to no important revisions of the overall projections the latter. Furthermore, insurance salesmen's commissions for the year 2000. are substantially higher than those of mutual funds An important but neglected point is that these prosalesmen. In addition, many mutual funds have changed jections are made in terms of the total values for shares to a “no load” or no commission basis. listed on the markets and for the institutional holdings of The slope of the line representing the total market value some part of these values. Portfolio concentration perof all securities is lower than that of most of the institu- centages are prepared on a different basis than the overall tional investors. This condition implies a lower growth rate dollar-based projections just discussed. The portfolio for total market values of shares than for institutional concentration percentage for each individual company holdings. This observation about relative growth rates is irrespective of its size is developed. The average value of much more important for the purposes of this than these individual company concentration percentages is the exact projections and their accuracy to date. calculated from these data. A given total market value of stocks is compatible with a considerable range for the INSTITUTIONAL HOLDINGS RISING average portfolio concentration percentage. High portfolio concentrations for small and medium-sized, rapidly Three views of the increases in aggregate portfolio growing corporations probably affect the average value concentrations are noted. First, Table 8 shows that the and skew the distribution, as suggested by the data in total institutional holdings of stock was 23.2 percent of Tables 5 and 10. the total market value of all shares in 1968. The projections in Table 9 show this percentage rising to 36.3 percent by HISTORICAL AND PROJECTED CONCENTRATIONS 1980 and to 55.2 percent by 2000. Figure 3 taken from the earlier study shows separate projections based upon SEC The author's study prepared in 1970 included a figure and NYSE data. The SEC-based data did not result in that represented estimates of both the historical and what appeared to be reasonable projections, but the projected cumulative portfolio concentrations. Those NYSE-based projections lead to a range of 29.5 to 37.5 estimates, which are shown as Figure 4, also included percent for 1980 and 46 to 58 percent for 2000 for the estimates of the percentage of the total value of stocks comparable values of the NYSE-listed stocks in the hands held by the institutions for 1966, 1980, and 2000. A of identified institutional owners. major problem with these earlier estimates was the The actual percentages of NYSE values held by the inadequate information about the extent of the common institutions from 1968 through 1972 are as follows: stock administered by bank trust departments. The special data provided to Senator Metcalf by the YEAR PERCENTAGE SEC from the IIS report provides a basis for very rough 1969. 24. 5 estimates of cumulative portfolio concentration ratios as 1970. 26. 6 of late 1969. The data included in Table 5 are increased by 1971. 29.0 1972. 29.6 2 to 4 times to adjust for the underestimation due to the These percentage points are plotted on the original figure tration ratios are shown as Table 10. If these data were IIS sampling. These estimates for 1969 portfolio concenas open circles. Their trend makes the upper range of the plotted on Figure 4, they would fall close to or around the 1980 projection appear to be the more likely actual out 1980 projection. come. In June 1972, the NYSE published projections for most A tabulation from Wiesenberger's data for total portinstitutional holdings for 1975 and 1980; these projections and not included in the IIS sample, which are shown as folio concentration for stocks held by mutual funds alone are reproduced as Table 9. These NYSÉ projections may Appendix D, Table 1-C, gives some support to the estibe compared with those shown in Table 8 and Figure 3. mates shown in Table 10. One point worthy of note is that this official N YSE projection for 1980 shows institutional ownership at 38.7 Table 10.-ESTIMATED PORTFOLIO CONCENTRATION percent as compared with the 37.5 percent for the study RATIOS AS OF LATE 1969 prepared in 1970. Estimated number of companies Institutions May Administer Half the Stock by 1980 Cumulative Portfolio concentration Another point that needs to be emphasized is that the frequency ratio percent For each range distribution bank-administered personal trust funds and estates were excluded from both of these studies. The stocks held by 40.0 and up 8 to 16.. 8 to 16. these personal trust funds and estates were about $97 35.0 to 39.9. 30 to 60. 38 to 76. billion at the end of 1971 and may be expected to grow at 30.0 to 34.9. 24 to 48. 60 to 124. least at the 8 percent rate anticipated for all stock values 25.0 to 29.9. 34 to 68. 94 to 192. 20.0 to 24.9. 40 to 80. 134 to 272. on the market. If the bank-administered personal trust The detail in the Wiesenberger summary shows the Conclusion following number of companies in each of the portfolio concentration intervals utilized in this report: The average level of institutional holdings probably NUMBER OF cannot be affected except by radical and/or punitive legisPORTFOLIO CONCENTRATION COMPANIES lation, both of which appear to be most unlikely. Some of RANGE (PERCENT) IN RANGE the undesirable consequences of the prospective increasing 30.0-34.9.. portfolio concentrations can still be reduced by publishing 25.0-29.9. 20.0–24.9. the institutional holdings concentrations above the 1 per15.0-19.9. cent level for each company, by further limiting portfolio As the average percentage of the market value of concentrations, and by limiting the concentration percommon stock held by institutional investors continues to centages of portfolio companies that are in a single industry move upward along the rapid growth path that has been developed on the basis of past information and analysis of when the percentage held in any one of these competing the likely shape of relevant events, the portfolio concen companies exceeds some reasonable level which remains trations will follow along as projected also. to be determined. 5 17 68 |