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.

Separate Accounts

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.

  1. Institutional Shares

    Institutional shares are a class of mutual fund shares available ...
  2. Institutional Investor

    An institutional investor is a nonbank person or organization ...
  3. Assuming Institution

    Assuming institution is a healthy financial institution that ...
  4. Managed Account

    A managed account is customized to the needs of the individual ...
  5. Investor Shares

    Investor shares are mutual fund shares structured for investment ...
  6. Fund Manager

    Fund managers oversee portfolio of mutual or hedge funds and ...
Related Articles
  1. Investing

    A Brief Guide To Institutional Investing

    Institutional investors are organizations that manage assets on others' behalf. They include pension funds, investment companies, insurance firms, endowments and private foundations.
  2. Investing

    iShares Silver Trust ETF: Who Is Invested? (SLV)

    Discover the top institutional owners of the iShares Silver Trust exchange-traded fund (ETF), their exact ownership and their recent position adjustments.
  3. Investing

    Institutional Investors Are in Love With ETFs

    A study reveals the growing interest of institutional investors in adopting and using exchange traded funds.
  4. Investing

    How to sell mutual funds to your clients

    Learn about the top talking points to cover when discussing mutual funds with clients – and how explaining their benefits can help you close the sale.
  5. Investing

    How to Buy Mutual Funds Online

    Learn how to buy mutual funds online. Discover which websites offer mutual fund trading services, how to choose a fund and typical fees.
  6. Financial Advisor

    5 Characteristics of Strong Mutual Fund Shares

    Discover some of the basic characteristics shared by good mutual funds that investors can use to help them in selecting funds.
  7. Investing

    Separately managed accounts: A mutual fund alternative

    It takes a hefty minimum investment to get in on an SMA, but these offer some distinct advantages.
  8. Financial Advisor

    What to Tell Clients About New Money Market Rules

    New money market rules will have little impact on clients. Here's what to tell them if they ask.
  9. Investing

    What You Need to Know About Mutual Funds

    Mutual funds are a good investment opportunity, but investors should know how they operate.
  1. What are the 9 major financial institutions?

    There are nine major types of financial institutions. Understand the major types of financial institutions that exist and ... Read Answer >>
  2. When to Invest in a Commingled Fund or a Separate Account

    Sometimes a commingled fund is a more suitable investment vehicle than a separate account. Read Answer >>
Trading Center