What is a retail fund?
What is an institutional fund?
How do they differ?
As with everything fund related, very few things are absolute. Therefore the following explanations are the differences generally associated with both…
Retail Funds
Everybody are hopefully aware of the many investment funds that investors can invest into. These are retail funds.
Most unsophisticated investors (basically anybody that do not work with investments or that do not have a large amount of money to invest) will invest via savings plans (like ISAs in the UK) or via their pension.
More sophisticated investors will look to invest into these funds to round out their investment portfolios.
Retail funds are listed with a regulatory authority and are available to the general public (although some might have restrictions on the minimum amount to invest, etc). This means that the regulatory requirements are extremely specific and onerous as the regulator has a duty to protect uninformed investors.
Institutional Funds
Also called segregated mandates (or seg mandates for short).
Large companies or investors will often want a bespoke investment solution based on the specific expertise of a fund manager.
They will work with the fund manager to construct the specific portfolio, operational and reporting processes they require. A good rule of thumb is that almost everything about institutional funds are driven by the client.
The client is the only investor and these funds are not open to the public, which means that the regulatory requirements are significantly less compared to a retail fund.