Types Of Investors

Question 1

What are the two main categorisation is for investors?

Answer 1

1. Institutional investors.
2. Individual investors.

Question 2

Briefly explain what institutional investors are

Answer 2

Institutional investors are organizations that invest large sums of money, often using professional fund managers that spend lots of time and money to manage the funds, research and make investment decisions.

Question 3

What are the different types of institutional investors?

Answer 3

1. Some institutional investors manage investments internally with their own professionals.
2. Others outsource investment management to external firms.
3. The choice depends on the institution’s size and expertise—larger institutions are more likely to manage funds internally.

Question 4

What are some examples of institutional investors?

Answer 4

1. Pension Funds –
   Invest money to provide retirement income.
2. Insurance Companies –
   Invest premiums to pay future claims.
3. Mutual Funds (e.g., unit trusts, OEICs) – Pool money from individuals to invest in stocks/bonds.
4. Hedge Funds –
   Use advanced strategies to maximize returns.
5. Charitable Trusts (e.g., Wellcome Trust) – Invest funds for charitable purposes.
6. Sovereign Wealth Funds (e.g., Abu Dhabi Investment Authority) –
   State-owned funds investing national wealth.

Question 5

Briefly explain what individual (retail) investors are

Answer 5

1. Retail investors are individuals who invest their own money but generally have less time, resources, and investment knowledge compared to institutional investors.
2. They also face greater tax considerations when investing.
3. The FCA limits promotions of high-risk investments to certain qualified retail investors based on their wealth and experience.

Question 6

What are the three different types of qualified retail investors under the FCA who can make high - risk investments?

Answer 6

1. Certified High-Net-Worth Investor:
   A. Annual income of £100,000+ OR
   B. Net investable assets (excluding pension/home) of £250,000+
2. Certified Sophisticated Investor:
   A. A person who is assessed and certified by a firm as knowledgeable about risks of different investments
   B. Must sign a statement accepting the risk of significant loss
3. Self-Certified Sophisticated Investor: Must meet at least one of these criteria:
   A. Member of a network of syndicate of business angels for 6+ months
   B. Made more than one investment in unlisted companies in the last 2 years
   C. Worked in private equity or in the provision of finance for small and medium-sized enterprises (SMEs) in the last 2 years
   D. Director of a company with a £1M+ turnover in the last 2 years

Question 7

The rules regarding promotion of high-risk investments changed in February 2023.

What are the two categories of high-risk investments that have restrictions in place?

Answer 7

1. Restricted Mass Market Investments (RMMI) –
   This includes:
   A. Non-Readily Realisable Securities (NRRS) (e.g., unlisted shares, bonds)
   B. Peer-to-peer agreements/portfolios
   C. Qualifying cryptoassets
2. Non-Mass Market Investments (NMMI) –
   This includes:
   A. Non-Mainstream Pooled Investments (NMPI) (e.g., unauthorised investment funds)
   B. Speculative Illiquid Securities (SIS) (e.g., speculative mini-bonds)

Question 8

What are the guidelines around promotion for RMMIs and NMMIs

Answer 8

1. Restricted Mass Market Investments (RMMI) –
   A. Can be promoted only to high-net-worth or sophisticated investors.
2. Non-Mass Market Investments (NMMI) – A. Cannot be mass marketed but can be directed to high-net-worth or sophisticated investors.
   B. Requires additional suitability assessment.