Institutional Co-Holdings Geometries

Abstract

Institutional investors, defined by AUM exceeding $100M, own over 70% of the US public equities market since 2007. Thus, understanding institutional portfolio reallocation dynamics bears significant regulatory implications, but current approaches fail to combine flexibility and intertemporal interpretability. Motivated by this gap, I examine the latent geometry of institutional US equities holdings between 1980 and 2024. Leveraging 13F holdings data, I construct AUM-weighted active portfolio weights to track the average institutional dollar while limiting re-pricing effects. I then conduct PCA on quarterly co-holdings matrices and apply a Generalized Procrustes approach to intertemporally align latent directions. Finally, I describe the aligned manager loadings via macroeconomic indicators and investor characteristics. My approach uncovers four main findings categories. First, I find that the institutional co-holdings latent geometry exhibits high intertemporal persistence, even in low dimensions. Notably, this latent stability is coupled with high intertemporal relative importance variation of principal components (PCs). Second, lagged market volatility and the yield slope describe manager disagreement across all PCs, though with heterogeneous explainability. Third, manager characteristics differentially identify loading directions, while mostly retaining sign stability in loading magnitudes. Lastly, characteristics strongly explain overall latent participation, yet weakly describe its relative allocation across PCs. Overall, these results position institutional demand as a key state variable of the financial markets that shapes risk organization and transmission, both cross-sectionally and intertemporally.