Institutional investors are the big guys on the block - the elephants. They're the pension funds, mutual funds, money managers, insurance companies, investment banks, commercial trusts, endowment funds, hedge funds, and some hedge fund investors. Institutional investors account for half of the volume of trades on the New York Stock Exchange. They move large blocks of shares and have tremendous influence on the stock market's movements. Because they're considered to be knowledgeable and, therefore, less likely to make uneducated investments
Since this crowd is considered knowledgable, the money they bring in is also called smart money.
You can't become an institutional investor, unless you work for an institution or create a financial institution like mutual fund, insurance, hedge fund, etc.
Institutional investor mostly use third party funds, but yeah they might also have their own money at play.