Where Is the Big Money?

While puzzling over the market's performance for the past few weeks, Wall Streeters have centered much of their speculation on those powerful but somewhat shadowy giants, the institutional investors. The institutions have become so wealthy that their assets now bulge above $600 billion, nearly as much as the U.S.'s gross national product; they currently account for close to one-third of the $60 billion-a-year trading on the New York Stock Exchange. Clearly their decisions to buy or sell have a powerful impact on which way the market goes. Lately these large investors have been holding back their money from the market, thus helping to grease the market's fall.

Du Pont, an institutional favorite, broke through its 1965 low last week without getting support. Small investors snapped up 80% to 90% of last week's 6,000,000-share Ford Motor Co. offering, while in 1963 the institutions grabbed up half of a similar Ford issue. The institutions were picking up a handful of stocks at bargain prices--such as Litton, Polaroid and Kresge--but mostly they just sat back and watched. Some figure that many stocks had been overpriced and were riding for a fall; others may be holding onto profits made by selling before the May 14 downturn in order to dress up their June 30 reports to shareholders, meanwhile stashing their funds in short-term Government notes. Says James K. Hart, executive vice president of the Lehman Corp., a closed-end mutual fund: "We have been buying some stocks at certain prices, but have not actually been active in the market."

High & Rising. All the talk about the institutional investors has heightened public curiosity about the size, scope and nature of their market operations. The largest of the lot are the life insurance companies (assets: $151 billion), but their influence on Wall Street is limited because state laws and inbred conservatism have held their stock investments to only $6 billion. Much more active in the market are the fire and casualty insurance companies (assets: $40 billion), the private foundations ($14 billion) and college endowment funds ($8 billion, of which $1 billion belongs to Harvard). By far the most important, however, are the fast-growing private pension funds (assets: $77 billion) and the nation's 500 mutual funds ($34 billion).

The private pension funds usually keep a high and rising 40% of their funds in the stock market. Some of the employees' funds have assets as big as huge companies: the A.T. & T. fund amounts to $4.7 billion, and U.S. Steel, General Motors and Sears, Roebuck each approach $2 billion. The pension funds, into which the employer usually pays all the money, are run by a mixed board of management and labor, which heeds the advice of a bank or a Wall Street investment house.

And Growing. The mutual funds are only half as big as the pension funds, but weigh almost as heavily in the market because they commonly put $4 out of every $5 into stocks. In the 100 most important funds, tremendous buy-or-sell power is wielded by small committees of managers, who think of potential loss before they think of potential gain and place one factor above all others: the quality of a company's management. The biggest funds--such as Investors' Mutual, Massachusetts Investors' Trust and the Wellington Fund--have a small turnover and aim to find stocks that they can profitably hold for six years or more.

The institutional impact is destined to become stronger in the market. Mutual-fund assets have grown by an average 14% annually in recent years, and more and more labor settlements call for increased pension benefits. This tide of new money can have a major effect on the market, often helping to stabilize stock prices. Says Robert Driscoll, president of the Manhattan-based Affiliated Fund: "When the market goes up, we sell--and when the market goes down we buy." As the past few weeks have illustrated, the institutions' very size can make them an unsettling force, even when they go nowhere.

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