GERMANY – German institutional investors, which are highly exposed to fixed income, could this year hike allocations to riskier asset classes like equities and alternatives, says the asset management arm of private bank Sal. Oppenheim.
Despite the positive equity markets of the last two years, many German pension funds still have between 70% and 80% invested in – mostly government - bonds. Up to another 10% is allocated to equities and the rest is split between real estate and alternatives like private equity and hedge funds.
Detlef Bierbaum, a Sal. Oppenheim partner in charge of asset management, said such the fixation with fixed income had mainly to do with these investors’ inability to take significant investment risk amid the weak equity markets of the past.
This year, however, “some of the holdings in low-risk but also low return bonds could now be transferred to asset classes that offer higher returns,” he said, adding that private equity, real estate and quantitative approaches to equity investing would benefit most from the trend.
“It’s also possible that dynamic investment strategies – namely those involving separate management of various asset classes, currencies and risks – will be more heavily demanded,” said Bierbaum.
As reported by IPE, one dynamic investment approach that has gone over well with German pension funds is global tactical asset allocation (GTAA). Partly due to GTAA, US bank Goldman Sachs has emerged as one of the leading foreign asset managers for German pension funds.
Separately, Sal. Oppenheim’s asset manager said its institutional funds had inflows of €1.8bn during 2005, bringing total assets under management (AUM) to €27.5bn. Of that volume, €9bn is invested in real estate funds targeted to institutional investors.
For 2006, Bierbaum said the asset manager expected a double-digit increase in AUM.