German institutionals dump bonds, shift towards real estate
GERMANY – German institutional investors have reduced their bond holdings considerably and replaced them with money market instruments and real estate, according to independent studies by Union Investment and Universal Investment.
Approximately one-fourth of the 80 institutional investors surveyed by Universal said they planned to avoid traditional bond investments in future.
Union's annual risk survey of more than 100 investors found that bonds, on average, were still the largest asset class in German institutional portfolios, but that their share had shrunk from 74% to 46% year on year.
Both studies found that real estate investments were on the rise, with Universal noting that more than 40% of the Pensionskassen, Versorgungswerke, insurers and banks it surveyed already had nearly 10% allocations to the asset class.
Universal said nearly 30% of respondents to its survey were planning to increase their real estate allocation by as much as 300 basis points over the next three years, and that nearly 15% planned even higher increases over the same period. Among the institutes canvassed by Union, the allocation has tripled year-on-year from 5% to 15%.
Universal said it had also seen greater use of alternatives and infrastructure investments such as renewable energies, motorways and energy grids.
Meanwhile, Union pointed out that 83% of institutions had made 'avoiding losses' their top priority – less than 10% of respondents considered 'returns' to be their top priority.
Alexander Schindler, a board member at Union, said the increase of the share of money market instruments from 11% to 23% was an indication of investors' "profound uncertainty".
He said they had "evidently parked their cash in money market assets" and planned to "wait until the situation had calmed down".
But he also warned that this could become "a problem for society" in the long run, given the rate of inflation.
Union also found that nearly 85% of its respondents believed they could generate better returns with fewer regulatory restrictions, a 100bps year-on-year increase.