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MENTORING - General - Financial institutions - Coggle Diagram
MENTORING - General - Financial institutions
We are going to discuss about those financial institutions that matter to us a lot in trading. These are the big institutions that set the market price. That means they only can move the market. No one else.
The primary feature of a financial market is to shift money or funds from savers to investors. And then generate return on both sides.
In stock markets or any financial markets, asset managers are the real institutions that can move the price. No other player has the might to do so.
Asset managers are also called real money. They are very very long term investors. They step into the market, or stocks, with an intention to stay for decades, not years or months.
Asset managers shift money from savers to investors. In doing so they generate a return that is commensurate to the risks that they take.
Asset managers pool money from savers and create long-term liabilities (over often decades) along with required cash outflows.
To meet these liabilities, these asset managers create assets through various financial assets and real assets, again with required cash flows, that happen over decades.
These asset managers need financial or real assets that can bring long-term cash inflows to meet their outflows on the other side.
Generally real assets can be real estate, art, wine, commodities and oil or any asset that can be felt. For example, even wind turbines.
These asset managers are global and they invest across the globe for returns. In India they invest mostly in equities. Why?
They invest in financial assets also, such as stocks, derivatives, bonds and interest rates, FX.
In India, we do not have a well developed bond and currency markets.
By Indian standards, only our equity markets are deeper. Rest all are non existent.
Asset managers are generally pension funds, sovereign wealth funds (SWFs), endowment funds, mutual funds, insurance companies and then any institution that pools money from savers for generating long term wealth.
For example, SWFs are GIC of Singapore and Norges Bank fund of Norway.
Endowment funds are those run by universities mainly.
Asset managers are always continuously looking for opportunities because they have an unending 'float'.
What do they look into when they are buying into stocks? They look for sustainable returns at low risk. Because they have to match their cash inflows and outflows.
Asset managers cannot stay in cash. They have to generate return over long term.
Asset managers are called buy side institutions. They are also non-leveraged.
Asset managers have a lot of cash. They do not need leverage. That is why they take confident risks. They have the ability to move the market without taking leverage.
The opposite side of these non-leveraged players are leveraged players.
Leveraged players are those who take excessive risks. They are not informed investors like asset managers. Asset managers are sophisticated.
Leveraged players are generally hedge funds, quant funds, high net worth individuals, retailers, brokers. dealers, market makers.