GERMANY - Security and liquidity have become the chief concerns for German institutional investors, with returns now secondary, says Union Investment.
Additionally, the importance of environmental and reputational risk rose in the wake of the BP oil spill in the Gulf of Mexico, the company said.
As part of its annual risk management survey - which covers more than 80 institutions with €360bn in assets under management - Union found that only 7% of respondents saw returns as a priority, down from three years ago when almost four times as many saw returns as one of the driving factors.
This was reflected in the country's asset allocation, with an increased exposure to bonds replacing investments in the equity market.
Compared with 2007, when only 22% rated secure investments as important, now almost three-quarters, or 70%, saw this as paramount.
Alexander Schindler, a board member at Union Investment responsible for institutional clients, said the trends were two sides of the same coin.
"Superior returns can only be achieved by assuming a higher level of risk, so when an investor becomes more risk averse, return should automatically become less important to that investor," he said.
He added that while the importance of a secure investment had fallen from 81% to its current level of 70% over the last year, the survey did not find any evidence of the resurgence in risk appetite often cited by market observers.
He said: "Given the fact the importance of return is extremely low, investors are definitely not starting to take on risk, and as a result, the downward pressure on returns is likely to increase in the medium term."
The survey also found that absolute return strategies grew more popular during the financial crisis, as did replacing the customary use of benchmark-linked strategies.
Professor Lutz Johanning, who teaches at the Otto Beisheim School of Management and co-wrote the study, said: "Because of the huge market fluctuations during the financial crisis ... the absolute level of loss has increasingly influenced the risk perceived by investors."
Finally, environmental risk became an important factor to consider in the wake of the BP oil leak over the summer.
Damage to reputation and the environment were rated as very important by 59% and 24% of respondents, respectively, up by 21 percentage points in the former case and increasing sixfold over 2009 in the latter.
The survey echoed another conducted earlier this year by Union Investment that found institutional investors in Germany were seeking out sustainable investments as a means of managing risk, rather than to boost returns.
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