Retail vs. institutional investing
Although our website provides you with a wide variety of information about investments, this information is not intended to be applied to your own personal investment portfolio. This is because there are significant differences between retail investing (your portfolio) and institutional investing (the CAAT Plan portfolio).
Retail versus institutional
Retail investing deals with individual investors, who want to purchase small amounts of securities for themselves, in many cases for their RRSPs or other individual savings plans. An investment manager or advisor often works directly with the individual to provide advice in making appropriate decisions. The decision to buy an investment product is one among the many day-to-day choices that can confront a retail investor, although not many individuals have the luxury of time to monitor economic trends and market activity.
Institutional investing is done by investment managers who are part of, or engaged by banks, insurance companies, mutual funds, charities, endowment funds and pension funds. The organizations that make investment decisions in this environment are focused on one thing: getting return for their clients' money. The individuals that are ultimately responsible for investing a fund's assets will have the appropriate level of skill in their specialized area of investments, and have few daily distractions from their mandate.
Similarities
The general principles of both types of investing are similar. The investor must determine the goal of the investment - what is the need? What rate of return will be required to support that need, and over what time frame? Then the investor must create an asset mix allotment to support the goal, and select investment firms or funds that are likely to produce the best results. Diversification of the assets in the portfolio is an essential characteristic, as it helps to reduce risk. And of course there is one goal that applies to everyone: to earn a real rate of return that exceeds inflation.
Differences
The differences can be seen in the implementation of the investment plan. The size of the investment, which can affect the choices made, will be dramatically different. Variation will also be seen in the level of detail required to construct an appropriate asset mix, the variety of firms and products available, and the cost.
Pension plan portfolios such as ours include components that would not be relevant or cost-effective for an individual investor. Some types of investments are relatively costly to implement and would not be practical additions to an individual's portfolio. However, given the size of pension funds and their comparatively long time horizon, the opportunity for improved performance justifies the cost of the service.
The CAAT Plan's current investment strategy was developed out of a long-term asset-liability analysis and a detailed risk assessment. These studies involved the Plan's actuary and other service providers. The resulting asset mix policy is one that is determined to be appropriate to the Plan's goal of paying pensions indefinitely. Many retail portfolios, however are based on a broad range of mutual funds, and are tailored to meet the needs of individual investors and their specific savings goals.
What can be concluded from this comparison?
It is not wise for an individual investor to try to imitate the CAAT Plan portfolio. Choosing the same investment products, or even the same kind of investment products the Plan has, would be meaningful only for an individual with the same very large pool of capital to invest, and the same return requirements and risk tolerance as the Plan.