Institutional investors in continental Europe are switching ‘vigorously’ from bonds into equities and rushing out of domestic into international securities, according to the latest research by consultant Greenwich Associates.
And the number of external investment managers being brought in to manage these assets is ballooning, the Greenwich figures show.
In its report ‘Investment Management – Continental Europe’, Greenwich records an overall drop amongst institutions from 1998 figures of a 57% average in fixed-income to a halfway split of 50% a year later.
During the same period equities soared to an average 36% of portfolios from 29% in 1998.
However, Berndt Perl, a consultant with Greenwich, notes that the equity shift is not a homogenous one: “While these figures represent trends for the continent as a whole, there are significant differences from country to country.”
Exceptionally large equity increases were recorded in Italy and Finland up to 25% and 23% respectively (see table 1.) The Netherlands (45%), Denmark (42%), Germany (34%) and Sweden (81%) also saw substantial share shifts, while more modest rises were registered in France (33%) and Switzerland (40%). Conversely, in Spain (16%) and Norway (25%) equity portions actually declined.
A particularly striking aspect of the Greenwich figures comes over in the pace of shifts from domestic to non-domestic European and other international securities – be they bonds or shares.
Overall domestic allocations to paper dropped from 45% to 35% over the year 1998 to 1999, while overseas fixed-income rose from 12% to 15% in the average portfolio.
Although domestic equity levels remained stable, non-domestic European equity allocations moved up from 8% to 10% - with North American shares rising from 4to 6% and other foreign equities notching up one point from 3 to 4%.
Rodger Smith at Greenwich believes these trends can be expected to continue: “Eight times as many continental institutions expect allocations to domestic bonds to a lower proportion of assets in 2002 as expect it to be higher, and four times as many expect their allocations to higher as expect it to be lower.
“Expectations that allocations to domestic equities will continue falling outweigh those expecting them to rise more than two to one, and expectations that international equity allocations will continue to rise are fifteen times more numerous than the contrary.”
In terms of the numbers of managers being hired to manage these increasing and diversifying equity allocations, the Greenwich figures show a significant leap in services being demanded.
Across the board, the average number of outside managers used by institutions rose from 4.6 in 1998 to 5.2 last year.
“It is significant that in no country did the average decline,” adds Smith. “In addition, 40% of all funds over e500m now employ more than five external managers.”
Interestingly, while the absolute level of institutional assets managed grew in continental Europe from e266bn to e292bn over the year, the actual percentage managed externally remained stable at 24% of the total. Greenwich findings show that this figure is set to rise though to e413bn – or 26% of all assets. Bjorn Forfang of Greenwich notes: “As these funds diversify they add external managers to manage the new areas.”
As an example, the number of institutions using an active external manager for foreign equity investment rose from 32 to 44% over one year, and similarly the proportion using a passive external manager for foreign stocks went up from 11% to 18%.
Undoubtedly marketing approaches by investment managers are playing a part here, a fact borne out by the Greenwich study, which shows that the typical institution on the continent received 13 solicitations in 1999 compared to 11.5 the year before.