Latin American Capital Markets

INSTITUTIONAL INVESTORS AND CAPITAL MARKET DEVELOPMENT 139Table 5-3 I Growth of Institutional Investorsin the European Union Following Integration(Institutional investor assets as a percentage of GDP)CountryUnited KingdomGermanyItalyNetherlandsGreeceSpainPortugalSource: OECD (2000).1992131.234.021.8131.53.021.918.31999226.776.896.9212.840.165.450.8Percentage change72.8123.5344.561.81236198.0177.6By contrast, institutional investors in the European Union, with a combinedGDP of $9 trillion, suffered from disparate regulations before integrating their marketsin the 1990s. As a result, institutions faced costly barriers to accessing the capitalpools of member states.The United States maintains 57 percent of the world's mutualfund assets, compared with 28 percent for Europe. Europe has by far the largestnumber of funds due to the number of national markets and distribution channels;however, fund size in Europe has remained static, whereas in the United States it hasdoubled (Zurstrassen 1998). The economies of scale achieved in the United Statescan increase competition in performance and fee levels, thereby drawing even moreinvestment to the market.With the implementation of a common European currency, however; issuershave begun listing their companies on fewer exchanges, thus increasing market liquidity(Gaa and others 2001). Integration has led to cross-border exchange, recentltadvanced through the merger of the Paris, Amsterdam, and Brussels bourses to formEuronext. Integration has also furthered plans toward a consolidated clearance andsettlement system (Gaa and others 2001). As shown in table 5-3, European Unionintegration has had a positive effect on the development of the institutional sector,particularly among the less wealthy member countries, such as Greece and Portugal,which have reaped considerable advantages since its implementation (box 5-4).Good Corporate GovernanceCorporate governance involves a set of relationships among a company's management,board, and shareholders and concerns the tensions that arise from the separaCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub