Latin American Capital Markets

INSTITUTIONAL INVESTORS AND CAPITAL MARKET DEVELOPMENT 121cent of U.S. institutional assets. Within the capital markets, pension funds and mutualfunds control almost half of all U.S. equities and account for the majority of total U.S.daily trading volume, while insurance companies tend to own more bonds than equities(ICI 2001; Conference Board 2000).Other OECD CountriesInstitutional investors have also become the dominant holders of financial assets inother OECD countries. With increased savings through institutions, and general assetappreciation, institutional assets in OECD countries increased more than 12 percenton average in 1990-98 (OECD 2000). After the United States, the United Kingdommaintains the next-largest institutional sector; with assets of $3 trillion in 1998 (203percent of GDP); followed by France, with $ 1.7 trillion in institutional assets (107 percentof GDP); Germany, with $ 1.6 trillion (66 percent of GDP); Japan, with $ 1.5 trillion(91 percent of GDP); and Italy, with about $1 trillion (79 percent of GDP). 3 However;the significance of different types of institutions, and the markets they invest in, isnot uniform across OECD countries. With the exceptions of the United States and theUnited Kingdom, insurance companies play a dominant role in many OECD markets.Pension fund assets, although also significant, are concentrated in two countries, theUnited Kingdom and the Netherlands (OECD 2000). Mutual funds have generally experiencedtremendous growth throughout the OECD. In the capital markets, only institutionsin the United Kingdom, the United States, and Australia invest predominantlyin equity securities; throughout the remainder of the OECD, institutional investor portfoliosconsist largely of fixed-income assets (OECD 2000).Latin America and the CaribbeanOver the past decade, assets under institutional management in a number of LatinAmerican and Caribbean markets experienced significant growth. However, on a regionalbasis, the sector remains underdeveloped relative to its potential. Using theOECD countries as a benchmark, figure 5-1 shows that the institutional assets of someLatin American countries comprise a substantially smaller percentage of GDP relativeto more mature economies, thus suggesting that Latin American and Caribbean economiescould sustain larger institutional sectors. A notable exception is Chile's institutionalsector; which comprises more than 50 percent of GDP With well-developedCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub3 Other developed institutional markets are Canada, the Netherlands, Korea, Spain, and Switzerland.