There are different types of investment clients.
Different individual investors have different investment goals, levels of risk tolerance, and constraints. Some seek growth while others may invest to get regular income.
An institutional investor's role is to act as a highly specialized investor on behalf of others. There are many types of institutional investors.
A pension plan is a fund that provides retirement income to employees. It is typically considered a long-term investor with high risk tolerance and low liquidity needs.
An endowment or a foundation is an investment fund set up by an institution in which regular withdrawals from the invested capital are used for ongoing operations. Endowments and foundations are often used by universities, hospitals, and churches. They are funded by donations. A typical investment object is to maintain the real value of the fund while generating income to fund the objectives of the institution.
A bank typically has a very short investment horizon and low risk tolerance. Its investments are usually conservative. The investment objective of a bank's excess reserves is to earn a return that is higher than the interest rate it pays on its deposit.
Investments made by insurance companies are relatively conservative. Although the income needs are typically low, the liquidity needs of such investments are usually high (in order for insurance companies to pay claims).
Both the risk tolerance and the return requirement of mutual funds are predefined for each fund and can vary sharply between funds. They are more specialized than pension funds or insurance companies. Study Session 19 discusses mutual funds in more detail.
A sovereign wealth fund is a state-owned investment fund. There are two types of funds: saving funds and stabilization funds. Stabilization funds are created to reduce the volatility of government revenues, to counter the boom-bust cycles' adverse effect on government spending and the national economy.