The Financial Times is reporting how individual retail investment in U.S. equities has fallen to record lows (see article). This recent data highlights not only the nervousness of retail investors, but also illustrates the growing importance of institutional investors. By the end of 2006, retail investors owned 34 percent of all shares and 24 percent of the stock of the top 1,000 companies. These record low numbers are in contrast to when retail investors owned 94 percent of all stocks in 1950 and 63 percent in 1980. As comparison, institutions owned 76 percent of the shares in the biggest 1,000 companies in 2006, up from 61 percent in 2000.

Of course, one way to have the overall level of retail invest be down is for the large and rich retail investors to bail out of the market. A recent HSBC report (see Yahoo article) finds that the world's wealthiest people are moving their money out of stocks and bonds and into cash. As mentioned by Peter Braunwalder, chief executive of HSBC Private Bank:
"The first half of 2008 has seen a notable change in client expectations and investment choices. Faced with inflation worries, volatile asset prices and sudden changes in exchange rates, a majority of investors have reduced their transaction volumes in equities, bonds, and structured products." Apparently, such movement into cash is greatest for clients from Asia, where their tolerance for derivatives and structure vehicles has decreased significantly as counterparty risks and volatility has increased. Given recent moves by the Fed and other central banks to increase liquidity in the wake of the credit crisis, some worry how this liquidity will eventually be removed from the market, and worry that interest rates will rise as a result.

Apparently, even large sovereign wealth funds may also be having second thoughts, or are at least re-evaluating how they deploy their ever increasing capital. An article from Asian Investor discusses how sovereign wealth funds, with their own mixed investment results allocating capital to struggling financial institutions, may now be looking for broad diversification, which will ultimately increase the amount of passive investments they make.

None of this really seems to be good news for the banks or the exchanges. As evidence of further weakening, derivative trades on the exchanges fell 13% in the second quarter (see Bloomberg article). This weakening comes as more exchanges enter the fray, causing the London Stock Exchange to cut fees as it deals with new competitors (see Financial Times article).