What is an Institutional Fund
An institutional fund is a fund with assets invested by institutional investors. Institutional funds can include investments for a variety of institutional purposes including educational endowments, non-profit foundations, government and corporate investment funds, and government and corporate retirement plans. Investment managers offer institutional funds with varying market objectives. These funds are used to build comprehensive investment portfolios for institutional clients.
BREAKING DOWN Institutional Fund
Institutional funds are offered by investment managers to institutional clients through a few different structures. Typically institutional clients have a board of trustees responsible for managing a comprehensive institutional investment portfolio on behalf of an institution. Institutional funds may also be invested in by designated fund managers. Overall, institutional clients are typically charged with managing assets on behalf of an institution or group of investors. Therefore, institutional clients typically have relatively higher investment allocations, usually ranging above $200,000.
An institutional client is responsible for managing a portfolio of investments on behalf of an institution. Prominent institutional clients in the marketplace represent educational endowments, non-profit foundations, government and corporate investment funds, and government and corporate retirement plans.
In the marketplace, investment managers offer structured investment funds for investment by institutional clients. These funds have specific requirements with the minimum investment being the primary requirement. Institutional clients can work with multiple investment managers to build a portfolio with multiple institutional funds. They may also choose to work with a single investment manager and invest through only one fund.
Institutional Fund Offerings
Investment managers offer a few types of fund structures specifically for investment by institutional clients. These funds are usually part of a pooled fund managed comprehensively for efficient operations and transactional costs. Institutional fund offerings can include institutional shares of a mutual fund, commingled institutional funds and institutional separate accounts.
Institutional Mutual Fund Share Classes
Mutual funds offer institutional shares as one class of their mutual funds. Institutional shares have their own fee structure and investing requirements. Institutional shares usually offer the lowest expense ratios of all a mutual fund’s share classes. The minimum investment is usually around $200,000.
Institutional Commingled Funds
Outside of mutual fund offerings, an investment manager may also create institutional commingled funds. Commingled funds are a type of investment vehicle that uses a pooled investment structure. Institutional commingled funds will have similar investing and fund requirements as institutional mutual fund share classes. They also have their own fee structure and can offer low expense ratios due to greater economies of scale from larger investments.
All types of investment managers also offer separate account management for institutional investors. Separate accounts are most often used when an institutional client seeks to manage assets outside of an established investment fund offering already provided by the firm. In some cases, investment mangers may be responsible for managing all the assets for an institutional client in a broadly diversified separate account. Separate accounts will have their own fee structures determined by the investment manager. Separate account fees may be higher than other institutional fund fees because of the greater customization involved with managing the fund.