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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Types of Investors in Financial Markets

Types of Investors in Financial Markets

Lindsey Matthews

30 years: Risk management & derivatives trading

So far in our discussions about the financial markets we’ve only mentioned that there are people with excess capital looking to invest it. This video will cover off those main investors explaining their different investment objectives and types.

So far in our discussions about the financial markets we’ve only mentioned that there are people with excess capital looking to invest it. This video will cover off those main investors explaining their different investment objectives and types.

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Types of Investors in Financial Markets

8 mins 35 secs

Key learning objectives:

  • Understand the reason for these larger asset owners to invest in the financial markets

  • Outline some of the largest asset owners

Overview:

The type of lenders within the financial markets can be characterised as individuals, corporates or governments, but within the subsets are different types of investors which don’t all have the same goals. Individuals can buy shares, or government bonds, however most of the money that buys these securities comes from much larger asset owners including insurance companies, pension schemes, sovereign wealth funds, endowments and foundations, private wealth and family offices as well as mutual funds and other similar structures.

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Summary

Why do insurance companies invest? 

Insurance companies have to invest some of their premium income to generate returns which are used to pay out insurance claims when they fall due. Insurance companies typically invest substantially in the bond markets as well as in equities and other growth assets. 

Why do pension companies invest?

Pension schemes invest scheme assets in order to generate returns which are used to pay pensions to members in the future. They will invest significantly in Government bonds and high quality corporate bonds as well as equities and other growth assets, such as private equity funds, infrastructure, real estate and even hedge funds.

Defined benefit pension schemes pay promised amounts to members, regardless of investment performance. Defined contribution pension schemes deliver a return equal to the performance on the underlying assets and so the risk is taken by the individual member.

Why do sovereign wealth funds invest?

Some of the biggest investors in the world manage the assets of richer countries. Given their size and broad range of investment objectives these funds tend to invest in the public and private capital markets across a very broad range of instruments, employing sophisticated investment offices.

Why do endowments and foundations invest?

There are a great many charitable endowments and foundations set up to receive donations for, and to pay out funding to, schools, colleges and universities, religious organisations, art galleries. These charities and foundations have $10bns invested. They generally have a policy on how much of the endowment can be paid out to fund their activities each year and how much must remain invested. 

They will invest in bonds and equities in order to generate income – to be spent on charitable purposes – but also growth assets – in order to be able to generate more income in the future for those purposes.

Why do private wealth offices and family offices invest?

Some individuals are very wealthy and invest directly in the market.  They, and their assets, are commonly referred to as private wealth. Some individuals are so wealthy that they set up an entire investment office for the management of their assets - these are called family offices. These offices are often seeking to generate an income and to grow capital at the same time. 

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Lindsey Matthews

Lindsey Matthews

Lindsey runs Perfordiant, an investment risk and performance consulting firm. He has worked in financial markets since 1992. Lindsey became an MD in fixed income and equities, ran a Risk function, and was on the management team of an Asset Management fintech business. Lindsey is now a Visiting Fellow at the Henley Business School, and resides on the board of CFA UK.

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