German institutions eye structured, private equity
GERMANY - Pension funds and insurers are planning more investment in alternatives this year and next, but will only award mandates for structured products and private equity, according to a new survey by German consultant Heissmann.
In compiling its survey, Heissmann queried German pension funds and insurers with total assets of around €200bn.
Of the investors that disclosed their 2006/2007 investment plans - virtually all queried - 6% said they would award new mandates for structured products. Half of the 6% said this would be their initial mandate.
Another 3% of the investors said they would increase their exposure to private equity in 2006/2007. No new mandates were planned for another 13% exposed to this asset class.
Regarding other alternatives, 6% of the investors said they were exposed to hedge funds but would not award new mandates. The same was true of the 9% already employing tactical asset allocation or overlay strategies.
For traditional asset classes, 3% of the investors said they would award their first real estate fund mandate, while 6% planned additional mandates in this area. Finally, a respective 9% of the investors said they would increase their exposure to equities and balanced funds.
The survey also provided the typical portfolio of the pension funds and insurers. According to it, 67% of the investors' assets are in fixed income and 18% in equities. Real estate makes up 3%.
Among alternatives, the investors had 8% in structured products and 1% in fund-of-hedge funds. Private equity accounted for just 0.1%.
Yet Bernd Haferstock, head of investment consulting at Heissmann, also noted that more than one-quarter of the investors were not achieving a target return of 5% per annum.
"Often the investors are far more concerned with minimising risk than generating returns which is why they are so heavily exposed to fixed income," Haferstock said.
Other key findings of the survey were that of the investors, 87% relied on an asset-liability study to establish their strategic asset allocation. Another 43% said they had switched to a so-called master fund solution for their investments.
In a German master fund, a single service provider carries out the back-office administration, such as reporting and risk monitoring, of all the investor's funds. The claimed benefits of the process are lower costs as well as greater transparency and risk management.