Frank Schnattinger outlines the findings of IPE’s seventh annual survey of German
institutional investors

Despite – or possibly because of – all the doomsayers, 2012 was a satisfactory investment year for the majority of institutional investors in Germany. Especially bonds, but also equity, real estate and the occasional alternative investment helped achieve solid returns. However, due to further increases in asset prices, it has become even harder to achieve the desperately needed 4% return without tapping hidden reserves.

Low rates, the continuing euro-zone crisis and, not least, micro-management and constant interference by politicians and regulators, mean that 2013’s investment industry operates in a difficult environment. We were therefore very interested in the results of this year’s investment survey, conducted for the seventh time in detail in the German-speaking region.

The survey, which concluded in mid-March, drew on responses from 170 institutions, with total assets under management of over €700bn.

Besides the two largest investment groups – Pensionskassen and first-pillar Versorgungswerke and banks/Sparkassen – insurers and corporates were particularly well represented among the respondents.

Good and bad in 2012
Most investors see an internal conflict. On the one hand, there was satisfaction with 2012 as an investment year, which, despite the torturous events surrounding Europe’s single currency, allowed for good returns. On the other hand, politically motivated low interest rates confront investors with a potentially impossible mission in achieving investment returns needed to meet existing obligations. The phrase ‘financial repression’ is on investors’ minds.

German investors in particular suffer from their traditionally high exposure to fixed income which they may not change for regulatory reaons. It is therefore unsurprising that alternatives within the fixed-income asset class are of particular interest. Demand for absolute-return and income-yielding strategies is, accordingly, also high.

Regarding the types of investment vehicle used, respondents mainly favoured tried and trusted ones. Spezialfonds remain popular, although this year they have been displaced from the top spot by direct investment. It is also notable that ETFs  are now almost as commonly mentioned as mutual funds.

Expectations for 2013
As a result of the low-interest-rate environment, it is easier to chart return expectations than in previous years. Two-thirds of respondents expect a net return of under 3%, one in four even expects returns to fall below 2% per annum. Optimistic assumptions about equity returns help little in such situations, as the multitude of regulations means that, for many institutions, equity investment is noticeably less attractive.

Investment considerations
It is therefore unsurprising that various fixed-income and debt products continue to draw the attention of investors. Assets such as emerging market debt, corporate bonds, high yield and lending retain the lead within the investment intention questionnaire, meaning that equity strategies and alternative investments may only partially profit from the low-interest-rate environment. Only infrastructure and, increasingly, currency retain high levels of interest, according to the survey.

Interest in absolute-return strategies remains stable, where investors, in particular, see the possibility to take a further step towards fulfilling their liabilities by agreeing customised outcomes with the investment manager. However, potential managers are seeing increased attention paid to their track record, with strategies less than three years not considered. Investors consider risk management processes to be most important, whereas the manager’s name recognition is increasingly less important.

ETF sector
The survey also shows continued high interest in the exchange traded fund (ETF) sector. Institutional investors are seeking out products that cater to their needs most cost-effectively – a clear call to the ETF industry to offer further specific solutions, filling any remaining niche. The sector was also repeatedly praised for quality of service, with iShares singled out for kudos.

Satisfaction with investment managers
As in previous years, a separate part of the survey gave respondents the opportunity to comment on the investment industry as a whole – covering asset managers, custodians, master KAGs and consultants. In common with last year, positive remarks predominated. Sixty-five providers received at least one positive comment; only 13 were criticised. The responses paint a very positive picture, potentially related to the good investment year, which should, nonetheless, be seen as confirmation for the investment industry. It will be interesting to see how this situation develops as investment strategies are put to the test by continuing low interest rates, showing who can truly offer added value for investors.
Most of the positive comments relate, as last year, to Frankfurt-based Union Investment – with investors praising both its approach and skills in the area of risk management. Berenberg, DekaBank and PIMCO came joint second, with PIMCO ranking as best non-domestic provider.

For the full results please contact Frank Schnattinger, editor, IPE Institutional Investment,, or find out more at The complete 72-page survey is available in both English and German.