How is the demand from institutional investors compared to that from individual investors?
Retail (individual) investors make security transactions with their own money and based on their understanding. Institutional investors invest on behalf of other institutions, such as pension funds or other companies. However, the difference is blurred because a large number of retail investors may invest in funds that are managed by institutional investors. Institutional investors are more knowledgeable and take care of the investments of others; any disadvantaged decision they make is likely to affect a large number of portfolios, including those of retail investors. Therefore, the SEC has laid down strict rules to regulate institutional investors.
This article provides an idea of the difference in investment demand from individual and institutional investors based on recent available data.
Volume and Market Share
The US GDP currently (2025) stands at nearly $30 trillion. The free-float-adjusted market cap of US equity is approximately $60 trillion (2025), with nearly $44 trillion in debt outstanding. Most of this debt is government debt, with the private debt market around $2.5 trillion. The private equity market is worth nearly $2.3 trillion in net asset value. This puts the total US investible universe around $110 trillion. Institutional and individual investors fight for a share of this pie, which is the supply for investment demand.
The US equity is valued at ~$60 trillion out of the total global value of equity value of ~$115 trillion. While concrete data for the breakup between institutional and retail investors can be hard to come by, individual investors made up somewhere up to 25% of the trading volume in US equities in 2021.
Trends showing the Demand
Financial literacy in the US is nearing saturation, with households highly aware of the investment options. The US market is replete with investment options for institutional and individual investors alike. As a comparison, the total market cap of equity to GDP ratio for the USA is nearly 2 ($60 trillion/$30 trillion) while it is a little less than 1 ($25 trillion/$28 trillion) for Europe, when both the US and Europe have similar per capita income levels. Another way to look at this is that the US markets have 2X supply of investment to fulfill the demand of institutional and individual investors when compared to the European markets.
The same ratio stands at 0.70 for China. Any changes in investment shares between retail and institutional investors are mostly a result of market and economic conditions. However, there are still some trends that stand out.
- Demand from retail investors has been increasing for the past decade. As per the Fed data, 52% or 65 million of the households in the U.S. own stocks.
- Individual households hold nearly 37.6% of the total US equity. Equities comprise 38.2% of the total household investment.
- Retirement accounts account for a $34.6 trillion investment. 52.1% of these are individually funded through defined contribution pension plans, IRA’s and annuities.
Market Impact
Institutional investors account for 70% to 90% of the daily trading volume, which varies from time to time. Institutional investors would make large trades, more than 10,000 stocks or securities in one transaction, whereas the average retail investor would trade only 100 securities on average. In European markets, the share of retail investors is even less, accounting for only 5% of the trade volume.
Retail investors may not trade regularly, and are more passive, and hence are less frequent traders. However, they might be more prone to emotional trading and make uninformed decisions during market turbulence. Together, they increase the volatility during bull or bear runs. Institutional investors, on the other hand, are less prone to emotional and uninformed decisions as they invest strategically. While they do not exacerbate volatility, they might be bound by investment mandates to exit investments. This may lead to them being more active investors.
Access and Influence
Institutional investors have access to investment research reports and analysts that can help them make better-informed decisions on investments. Retail investors, on the other hand, may not have ready access, which may hinder their investment decisions. However, of late, many online trading platforms have decreased the difference between the two types of investors by providing retail investors with ready research reports to enhance decision-making.
Institutional investors can influence the market by the sheer size of their trades and can significantly alter the real-time prices. Smaller trades from retail investors have zero to very low effect on the prices of the securities. However, during long-tail events, such as a market crash or a boom, individual investors can also enhance volatility significantly.
Fess Structure
While the trade volume from individual investors is higher, institutional investors are close in total amount invested because the size of transactions is much higher than that of individual investors. Institutional investors can therefore negotiate lower transaction fees.
Institutional investors pay somewhere around 0.2% to 2% of the fee from assets under management. However, this is not a brokership fee but rather an asset management fee. Brokerages are significantly less and might even be free. With the rise of online platforms, brokerages can be free for retail investors too, with payments required only for premium services.
Investment strategies used by Institutional Investors and Individual Investors
Investment strategies are highly influenced by the amount of investment pool and the information available. The global investments under management were $112 trillion at the end of 2021. Institutional investors have a larger amount to invest, and hence investment strategies and asset classes are likely to differ from those of individual investors. As per McKinsey’s report in 2021, the distribution of asset classes for institutional investors included 30.5% equity, 16% in real estate, 14% in infrastructure, 12.4% invested in private debt, and 9% in non-renewables.
Comparing this to retail investors who allocate a higher percentage of around 50% to 60% to equities and around 20% to 30% to fixed income. Retail investors cannot generally invest in private equity and debt unless they overcome significant income and wealth benchmarks of the SEC.
Due to differences in investable assets amount and type, the amount of information and knowledge, and resources available, investment strategies can differ for retail and institutional investors. Institutional investors can diversify investments in more asset classes, including over-the-counter products. Retail investors have fewer diversification options available, and therefore, they are a more active investor type.
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Retail and institutional investors are materially different when it comes to the investment classes. The demand for different assets depends on several factors, such as the amount of funds available, diversification needs, asset availability, and fees. With less knowledge and information, retail investors may hold on to the investments for a longer period of time to avoid volatility. Institutional investors make informed decisions based on changing market dynamics to enhance returns.
Eqvista’s portfolio management service can provide both institutional and retail investors with a way to keep track of their portfolios with regular valuations. This helps with monitoring the assets and tracking their performance so that any decision-making is supported by new information.
