Frank Schnattinger outlines the key findings of IPE Institutional Investment’s 2012 survey following trends in the German-speaking institutional market
Bond market dislocations, the euro crisis and the equity correction. One could certainly add to this list of unpleasant occurrences for investors in the past year. Anyone who thought that markets would enter a quiet phase after 2010 was clearly deceived. But the best results can arise from crises and dislocations, however painful they might be.
This makes a detailed picture of the thoughts and attitudes of institutional investors - in the German-speaking markets this spring in the form of the sixth edition of IPE Institutional Investment’s comprehensive survey - even more fascinating.
A total of 168 institutions with a combined asset volume of around €585bn took part in the survey. Almost 80% of the participants manage more than €500m. Apart from the largest investor group of Pensionskassen and Versorgungswerke (pension funds for professional groups), insurers, banks, savings institutions and church organisations were also represented. With regard to their professional level, heads of investment/treasury/finance participated (47%) along with CEOs and managing directors (18%) and portfolio managers (16%).
This year’s collapse in the sentiment and satisfaction of investors is most evident in comparison with last year. Nevertheless, the figures show that it is less the poor performance of the various asset classes and more the overall framework, in particular the failure in crisis management at the political level, that is responsible for this effect.
The resulting volatility has made investors cautious in their decision-making. In terms of asset classes as well as investment vehicles, there is a clearer focus on the tried-and-tested, as a result. For example, Spezialfonds (the preferred vehicle for institutional investment in Germany) are furthest ahead as the most widely used vehicle.
Respondents’ views on asset classes differ and clear divergences are evident in their preferences, according to investor group. Less regulated investors (in comparison with insurers), such as Pensionskassen/Versorgungswerke and corporates, said they had noticibly increased their equity holdings in the course of the year, whereas insurers recorded below-average participation in the recovery following last summer’s correction.
A further example is the topic of infrastructure, which was more intensively discussed primarily by more long-term investors such as Pensionskassen/Versorgungswerke, and also insurers, but left on the sidelines by others.
Despite the setback of 2011, investors have not allowed their sentiment to be dimmed. For sure, no-one sees 2012 as a year of skyrocketing returns, but the environment was stable in the first quarter and seen to be the foundation for a good investment year. The view, in summary, is one of rising equity indices, broadly stable government bond returns (with German issuers preferred) and stable credit spreads.
Nevertheless, the high weighting towards government debt means there is little room for higher returns. This is the view of most of the survey respondents. A majority of investors with a conservative, as well as those with a return-orientated, asset allocation assume attainable medium-term returns of 3-4% annually.
Where applicable, there is greater focus on the liability side. Liability-driven investments are increasingly entering the purview of investors and the trend towards alternative investments continues. Aside from the topic of infrastructure, various investor groups are again increasingly considering hedge funds and hedge fund-like strategies. Absolute-return strategies as a concept are also advancing in the context of the whole portfolio; individually agreed goals are at the fore.
In fixed income portfolios, asset classes including high yield and inflation linked are also at the top of the investors’ agenda.
The topic of inflation in fact preoccupies many investors strongly despite Germany’s moderate inflation rates. Almost one respondent in three anticipates “a high inflation scenario” of over 5%. Central banks were determined to be the main driver of prices due to their monetary measures in support of the banking sector. Since, in contrast to the medium-term outlook of 2012, barely any increase in the inflation rate is anticipated, there is still time to act.
In the tradition of previous years, participants were again given the chance at the close of the survey to praise their service providers, but also to express their dissatisfaction about aspects such as poor performance and unsatisfactory service among other things. It was interesting despite the muted sentiment and recent inflammation of the various crises, to record continued high satisfaction with providers.
Union Investments receives the crown for the most positive mentions, assisted by its clear focus on risk management. PIMCO leapt ahead to become best foreign provider and ended up at fifth place overall, in terms of the number of positive mentions, alongside Helaba Invest.
Investors gave almost 70 consulting and asset management providers a positive rating, and just 15 were criticised. Not a bad sign in an investment year like 2011.
For the complete results of the 84-page study (English and German versions available) please contact Frank Schanttinger, editor-in-chief, IPE Institutional Investment: firstname.lastname@example.org or see http://www.institutional-investment.de/store