Institutional Investor Preferences

Abstract

If we agree that concentration and coordination exists among emerging market’s institutional investors as discussed in prior chapters, then the preferences and actions of these institutional investors, as they influence the financial markets and politics in developing countries, are important to understand. In this chapter, institutional investors’ devaluation of democracy and preference for stability is explored. In particular, this chapter scrutinizes some of the top emerging market fund managers’ opinions about politics in developing countries. What emerges from a survey of various sources of information on emerging market investing is the finance community’s indifference and occasional disdain for democracy as they voice their preferences for neo-liberal reform and stability over most other concerns.¹ This chapter will also discuss whether the preference for stability through authoritarianism might be correct in terms of its ability to achieve the economic results sought by investors. In other words, are investors wise to opt for stability at the possible cost of decreasing political liberalization?