Institutional investors strengthen hold on Australian companies

Large, institutional investors are tightening their grip on Australian firms as capital held by smaller investors has dropped over the past decade, according to research carried out for the Australasian Investor Relations Association (AIRA).

The percentage of issued capital held by investors with fewer than 10,000 shares in the ASX 300 fell from 15.1 percent in 2002 to 9.9 percent in 2011, according to annual report data from Morningstar. This compares with a 5.2 percentage point increase for those investors with more than 10,000 shares.

‘The ASX Share Ownership Surveys in the 1990s showed increasing levels of retail ownership,’ explains University of Melbourne professor Dr Carole Comerton-Forde, who conducted the research on behalf of AIRA, in a press release. ‘However, our analysis of the annual report data suggests that, on average, this trend has been reversing since at least 2002.

‘Interestingly, this trend predates both the [global financial crash] and various market structure changes – both of which are argued to have caused a decline in retail investment. There are clearly other factors driving the level of retail investment in equities.’

Looking at the ‘larger and supposedly safer, higher-yielding companies’ in the ASX 20, researchers find a higher concentration of retail investors, representing some 97.1 percent of shareholders. Despite this, they own only 25.2 percent of the shares outstanding, leaving almost three quarters of the issued capital in the hands of just 2.9 percent of shareholders.

While institutional investors have increased their dominance across all levels of the ASX, small investors still own the ‘vast bulk’ of all shareholdings – but with a dwindling percentage of issued capital. For example, in the average ASX 20-listed company, 96.9 percent of shareholders own fewer than 10,000 shares.

This also means that ‘despite there being fewer retail shareholders, the leading Australian listed companies still have substantial numbers of small shareholders that are costly to service,’ adds the research.

Ian Matheson, AIRA chief executive officer, expresses hope the research will have an impact on the annual general meetings at Australian firms. ‘If such large percentages of most ASX 300 companies are held by institutional investors, then perhaps greater encouragement should be given to them to vote, as on average only 60 percent of the shares of those companies are voted,’ he says.