Institutional Investor Index

What Was the Institutional Investor Index?

The Institutional Investor Index, also known as the Country Credit Survey, was a measure of sovereign credit risk that was published biannually in the March and September issues of Institutional Investor magazine. 

Institutional Investor magazine began publishing the Institutional Investor Index in the late 1970s when the field of risk assessment was in its early stages. Today, the Institutional Investor Index is no longer published, having ceased publication in March 2016.

Understanding the Institutional Investor Index

The Institutional Investor Index was a country risk assessment model available to investors. Country risk refers to a collection of risks related to investing in a foreign country, including political risk, exchange rate risk, economic risk, sovereign risk, and transfer risk. Country risk is an important consideration for those interested in investing abroad.

When the Institutional Investor Index was first published, governments and agencies such as the World Bank and the International Monetary Fund (IMF) did not regularly disclose information on which to gauge the credit risk of sovereign debt. Investors and banks had minimal data on which to make decisions; instead, they relied on ideology and assumptions to assess global credit quality.

The Institutional Investor Index aimed to fill this void by soliciting survey responses from between 75 and 100 investment bank research departments. The respondents were asked to provide evaluations of a particular country’s creditworthiness. Their answers were then weighted in accordance with the respondent’s bank’s global exposure and the perceived quality of that country’s financial reporting standards. The resulting scores ranged from 0 to 100, indicating a very high and very low probability of default, respectively.

Today, investors have many more resources to turn to when it comes to assessing a country’s creditworthiness. These include credit rating agencies, international organizations, and governments themselves.

The last Institutional Investor Index was published in March 2016. Today, the publisher focuses on surveying buy-side and sell-side analysis as well as portfolio managers to determine their opinion as to the world’s best investor relations programs and executives.

Real-World Example

The final (March 2016) edition of the Institutional Investor Index considered Switzerland, Norway, and Germany to be the three most credit-worthy countries in the world, with scores of 95.2, 94.8, and 94.7, respectively.

The United States ranked in fourth place, with a score of 93.4. To put these scores in perspective, the global average rating of the 179 countries surveyed was 44.7. Rounding out the top 10 countries with the best credit ratings were Luxembourg, Singapore, Sweden, Canada, Netherlands, and Denmark.

At the other extreme were Somalia, South Sudan, and Zimbabwe. These were found to be the world’s least credit-worthy countries, with scores of 3.3, 6.3, and 6.8, respectively. Rounding out the bottom 10 countries were Sudan, North Korea, Central African Republic, Syria, Yemen, Guinea-Bissau, and Afghanistan.

The Index would also come with an overall analysis of the credit ratings around the world. For example, in March 2016, the Index assessed that overall European ratings rose and that emerging market countries also posted widespread gains. It identified that Greece's rating improved from its large slide during its debt crisis but that it still had a lot of ground to recover.

The report also noted that of the top 20 ranked countries, only South Korea posted a gain of more than a point in its credit score, while Canada and Finland experienced falls. The report would include facts of how the World Bank covered the global growth forecast as well as discussing changes in interest rates.