PI - 0303 Institutional Investors , Financial Market Efficiency and Financial Stability

ing from the likely increase in saving and wealth, the implications of growth in institutions, notably life insurers and pension funds, for financing patterns arise from differences in behaviour from the personal sector, which would otherwise hold assets directly. As we showed in Tables 7-9, portfolios of long-term institutions vary widely, but in most cases, they hold a greater proportion of capital-uncertain and long-term assets than households (Table 10). For example, equity holdings of pension funds in 1998 were 68% of the portfolio in the United Kingdom (including foreign equities) and 64% in the United States. But in each case, they compared favourably with personal sector equity holdings, which were 17% and 25%, respectively, in 2000. On the other hand, the personal sector tends to hold a much larger proportion of liquid assets than institutions do. These differences can be explained partly by time horizons, but institutions also have a comparative advantage in compensating for the increased risk of long-maturity assets by pooling.