Pittsburgh Post-Gazette – Gary Parsons, chairman of XM Satellite Radio Holdings Inc., was gratified in 2004 when blue-chip mutual funds began taking or increasing their stakes in his company. Thebets made by investors like TCW Asset Management, Fidelity Investments and Wellington Management were a sign that long-term investors were taking XM seriously.
XM’s smaller rival, Sirius Satellite Radio Inc., is still in the takeoff position with institutional holders. Although it has attracted some white-shoe investors like Fidelity, the bulk of its holders — around 72 percent — are individual investors.
For many start-ups, moving into a base of institutional shareholders, from the hedge funds and individual investors who typically hold the stock in the early stages, is an important goal. Institutions tend to be long-term investors with patience to ride out negative news, as has been the case particularly at XM recently. Individuals and many hedge funds, however, can be more idiosyncratic, trading on short-term news or because they need to dump stock to pay for something else, like a home or college.
In the case of satellite radio, which started airing in late 2001, XM has made the transition, with 95 percent of its stock now held by institutions. While the term institutions includes hedge funds as well as mutual funds, analysts believe it represents a heavy mutual-fund orientation in XM’s case. “It’s smart money versus fast money,” Mr. Parsons says.
