Pension funds’ increased risk tolerance is “all but certain” to impact fund returns negatively, as some are ill-prepared for the problems posed by increasing interest rates, Allianz Global Investors (AGI) has predicted.

Publishing its annual RiskMonitor – for the first time surveying investors globally – the German asset manager said its nearly 400 respondents were concerned about price bubbles developing in fixed income.

Equal numbers of respondents, or 51%, were concerned about the bubble materialising in high-yield corporate debt and developed market sovereign bonds, and 44% also perceived emerging market property as a risky proposition.

Developed market real estate was only considered overpriced and at risk of an asset bubble by 24% of respondents, ahead of only commodities, which 23% identified of being at risk due to central banks’ expansionist monetary policy.

The survey noted that the low-rate environment had led to “constrained” institutions – classed as those constructing cash-generating investment strategies such as pension funds – re-assessing the level of risk in individual portfolios.

“This open-mindedness among investors may well be necessary to meet performance objectives in this loose monetary policy environment,” the survey said.

“But the recent shift in risk tolerance is all but certain to negatively affect fund performance if rates rise quickly and unexpectedly, or if investors are ill prepared for managing the dynamics of interest rates as they return to normalcy.”

Of the 391 survey respondents, two-thirds said they saw an abnormal price distortion in fixed income markets developing over the last five years as a result of central bank intervention.

A further one-third said foreign exchange markets had been similarly affected, and 45% believed equity markets had been distorted.

The US Federal Reserve was singled out for its role by a number of respondents.

“Large institutional investors interviewed for this report pointed to multiple examples of emerging market economies, and even Japan, that have been negatively affected by the easy liquidity polices of the Fed and the coming tapering of that liquidity,” the survey said.

AGI chief executive Elizabeth Corley cited the impact of the looser monetary policy initiated in the wake of the crisis as a concern.

“Five years on, we find that, despite sovereign debt [being] at historic levels, growth remains anaemic, and that what was envisaged as first aid has become an enduring support to keep growth afloat,” she said.

“As we journey towards a world with less monetary stimulus, the question is, are we facing a bumpy landing or will policymakers be skilful enough to avoid unintended consequences?”