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Impact Investing

IPE special report May 2018

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European institutions turn to stocks - Greenwich

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EUROPE – Continental European institutional investors are turning to equities and alternatives in an attempt to boost returns, according to research by Greenwich Associates.

With solvency ratios averaging just 92%, continental Europe’s pension funds are trying to develop strategies to meet their obligations, says Greenwich, which has surveyed 282 fund professionals.

According to Greenwich, almost 60% of the large continental pension funds that disclosed their ratios reported were technically insolvent.

Says Greenwich consultant Berndt Perl: "The effects of the global equity market collapse have been more acute in Europe (than in North America or the UK) for three reasons:

“First, declines in continental stocks were more dramatic than anywhere else in the world except Japan; second, continental institutions shifted out of fixed income and into equities in the late ‘90s and were harder hit by the bursting of the ‘bubble;’ and, third, regulatory requirements in various continental markets forced funds to sell stocks at unfavourable times."

In order to respond to the solvency issue, institutional investors are planning to up equity allocations, step up their participation in alternative and international investments and review their use of absolute return strategies for their portfolios.

This coming year, almost 50% more institutions expect to increase their allocations to European equities than expect to decrease them. Most funds expect to reduce their use of European government bonds, but many anticipate using more corporate and non-European bonds.

In order to bolster risk-controlled returns, many European institutions are planning to increase their participation in alternative investments. During the next three years, nearly 10 times as many European institutions expect to increase their use of hedge funds as decrease, and six times as many expect to use more private equity than expect to use less, says Greenwich.

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