Many German institutional investors are keen to increase risk in their portfolios but feel their hands are tied, according to a recent survey by Feri.
While German insurers and banks have held their bond exposure – both government and corporate debt – at roughly the same level over the last two years, pension funds have decreased theirs from 68.3% to 56.1%.
This is well below the average for the institutions surveyed by Feri for this year’s biannual securities survey of nearly 140 institutional investors, including 24 insurers, 47 Pensionskassen, Versorgungswerke or company pension funds, 55 banks and 12 foundations.
Overall, 78% of the respondents’ €770bn in combined assets remained invested in bonds.
Christian Michel, who heads the funds team at Feri, told IPE that German insurers and banks wanted to reduce their bond exposure but felt “confined” by current regulations.
He noted that, while overall equity exposure in the 2013 survey dropped slightly compared with 2011, from 6.6% to 5.8%, pension funds increased theirs from 8.9% to 14.3%.
Similarly, pension funds increased their exposure to alternatives slightly from 3% to 4.3%, but Michel denied this represented a major shift in absolute terms, as pension funds account for just €1.5bn of the assets in the survey, compared with the €23.4bn managed by insurers.
“Those institutions that went out of [Portugal, Ireland, Italy, Greece, Great Britain and Spain] after the crisis have mostly undertaken a larger portfolio restructuring to include corporates and infrastructure and increase their equities allocation,” he added.
Over the next two years, survey respondents are planning to reduce their exposure to government bonds by another 0.6%, which would amount to a shift of about €1bn.
Further, real estate is to be increased by 5.3% to around 10%. Exposure currently stands at around 6% on average.
“There is further restructuring ongoing,” Michel said, adding that, with the shift away from bonds, some investors are also looking for new risk-management tools similar to those used by their peers in the UK and the US.
However, 60% of respondents, when asked whether they were using risk budget or risk-parity models, said the models still had “no relevance” for their portfolios.
But Michel pointed out that the rest were already using them, or about to introduce such models – which he said represented a much larger share than in previous surveys.
The survey also showed that German institutions are looking increasingly for specialisation in a manager, and that smaller boutiques are in high demand.
Some large asset managers such as Deutsche Asset & Wealth Management or Credit Suisse failed to make it into the Top 10 for “corporate quality”, as ranked by the surveyed institutions.
The Top 10, according to Feri, mainly comprised smaller providers, apart from Pimco.
In the portfolio management category, UBS AM and Fidelity made the top ranks as large players, Michel said.