Foreign Institutional Investors

A foreign institutional investor, or FII, is a hedge fund manager, pension fund

manager, mutual fund, bank, insurance firm or representative agent of these
entities who is registered to invest in a foreign country. The FII takes equity
positions in foreign financial markets on behalf of the entity that is based in
another country.

This term is frequently used in reference to investing in emerging market

economies. Direct access to the equities markets in some countries is limited and
regulated. For example, foreign institutional investors seeking to invest in Indian
companies must register with the Securities and Exchange Board of India, or SEBI.
Foreign Institutional Investments

Emerging markets offer significant potential for growth in the near future. This
potential is attracting large numbers of investors from the United States and other
countries. Many investments are made in the form of foreign institutional
investments. These investments are sometimes referred to as "hot money," since they
often represent substantial sums that can be withdrawn from the markets at any
time, potentially increasing volatility in foreign equity markets.

In the past few decades, developing economies began to appreciate the value of, and
need for, foreign investments, and made moves to provide easier access to their
financial markets. Registered foreign institutional investors increased 25% between
2006 and 2007. FIIs from the United States alone have devoted nearly $10 billion to
investments in foreign equities.

Foreign institutional investments have favored the banking and construction

sectors, as well as information technology companies. Major multinational companies
involved in foreign institutional investment include Citigroup (C), HSBC (ADR
-HSBC) and Merrill Lynch (MER).