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Bred in the bone

Asset allocation in Europe is an area where changes are made gradually, if at all. Countries seem wedded to their asset allocation pattern – almost as if it is a genetically controlled part of the national character.
This is perhaps no more clearly demonstrated when you look at the charts below, which group together countries’ asset predelictions, from the individual market breakdowns contained on each of the country reports in this issue of IPE’s Top 1000.
In these reports, the figures are often in more detail than we have been able to give here, as these are the distillation at European level of market practice. Even at this level some datais still not available in respect of some countries – such as Danish and German absence from involvement in foreign equities.
The allocation figures broadly correspond to our stereotypical picture, so the French are entrenched in domestic bonds, hold few equities – where they come bottom of the table for both domestic and foreign allocations – but are heavily into cash and other similar investments. This is not surprising given the nature of pensions system, where funding is mainly short term, under the heavily pay-as-you go approach.
But that the Finns and the Austrians are also so wedded to bonds might be a little surprising though the Italian commitment is not unexpected. That the Swedes are significant bond investors, might strike a discordant note, given their traditional liking for equities.
That the British and the Irish are not bond investors will not upset anyone’s preconceptions of these markets and the concomitant involvement in equities where both come top of the table, with the Irish ranking highest in their purchase of non domestic equities, followed by the Dutch, the British and the Belgians. Ireland and Belgium are often banded together in this context, as two small investment markets that perforce had to indulge their taste for equities by investing abroad, because of the limited supply at home. These figures treat domestic as the traditional national market, though increasingly those in the Euro-zone, will inevitably come to see this as the future domestic market.
The strength of property investing in the Swiss and Norwegian markets may lift a few eyebrows, but even in the UK, where it has not figured high on the asset allocation agenda, it is a surprisingly high, and well above some other countries which might be expected to be more interested in this asset class.
As to the future, these snapshot allocation figures, which come from a variety of sources that are acknowledged in each country’s description, do not supply any indicators. There is, supposedly, the long term the shift to bonds in countries with maturing schemes that will take time to show up in graphs such as these. This trend is being offset by those continental countries often setting out on the funded pension quest, eager to discard the bond in favour of the equity culture. Or rather, that was the scenario, until the supplanting of the young ‘equity culture’ in a number of countries with bonds, as a result of the markets’ downturns. So the days when portfolios are 50/50 equity/bond split or thereabouts seem as far off as ever, particulary in those countries where there has been an understandable flight back to fixed income, whereas other countries seem wedded to equities, sometimes seeing current conditions as an ideal buying opportunity.
But any such shifts are always marginal and will take a considerable time before they start to affect the established patterns of investment behaviour and consequently the charts.

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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