While it’s fashionable to think of capital as being owned by the super-rich, that’s just not the case. Over half of financial assets in the UK are in pension funds, with most of the rest held in insurance policies or savings accounts.
As a result, the people that benefit most from greater returns on investments are people planning for their retirement. By improving returns on this capital, IFCs help provide for pensioners and people saving for their futures.
Institutional investors, such as pension funds and life insurance companies, are usually limited from investing in high-risk projects. By reducing investment risk, IFCs help open up a large number of investment opportunities that wouldn’t otherwise be open, and thus increase returns.
Moreover, by facilitating cross-border capital flows, IFCs help diversify these investment portfolios. Countries with strong institutions that protect investments tend to be inter-dependent developed countries, and thus tend to be exposed to the same risks. By making it less costly to invest in countries without those institutions, which tend not to be exposed to the same risks, IFCs help balance portfolios: further reducing risk and improving risk-adjusted returns to savers.
By improving returns to savings, IFCs help earn ordinary British savers billions of pounds a year to provide for their retirements.