Ann: Trading Halt, page-160

Here’s an alternative view.

I actually think retail shareholders are stickier than institutional ones. Sure retail shareholders are prone to panic selling but the majority have a set and forget mindset. Most aren’t actively trading. Institutional investors on the other hand are active managers (vs passive etfs), ie they are paid management fees to manage investors money and are incentivised by the prospect of earning performance fees and are therefore more likely to actively enter and exit positions to generate greater fees. There’s no one size fits all and there are many different types of retail and institutional investors - but this is how I see it in broad terms.

IMO the main benefits of institutional investors joining the register are:

1) increased liquidity - both for the company itself and trading volumes. Institutional investors have much deeper pockets than retail shareholders and are therefore able to provide more capital support for a company’s growth plans. Institutional investors also need to take bigger positions to move the needle on their fund returns which increases buying (and selling) volumes providing greater liquidity for other shareholders. It’s great being a retail shareholder when an institution is trying to get set in a microcap, because they have limited liquidity, it can often lead to significant share price gains in a short time period as the insto bids up the price.

2. Price discovery. Institutional investors are paid to invest for a living and have access to greater resources. I don’t necessarily agree that the term “smart money” applies to all instos because there are a lot of ones with shitty performance, but they do assist with price discovery - which is why there are arguably less pricing distortions in larger companies than microcaps.

3. Credibility. Institutional funds come in all shapes and sizes but most have market cap thresholds and don’t fish in the very small end of town for various reasons (low liquidity, limited track record, poor governance etc). Therefore, the first time instos join the share register of a micro cap business it’s a sign of a maturing business IMO and adds credibility to the company’s prospects.

Anyway, I’m sure there are many who will disagree / there are other reasons I’m forgetting but the above are a couple of the key benefits of instos in my mind.

cheers