Return-hungry German institutions present opportunity

The Brandenburg GateGerman institutions are increasingly investing in real estate and equities as they seek alternatives to domestic and government bonds.

Their allocations to fixed income, currently at 74%, are on a “steady path of decline” since peaking at 80% in 2013.

A Greenwich Associates report, which publishes the figures for German asset allocation, quotes a German public pension fund as saying: “The low interest rate environment makes it impossible to meet return targets. We have not yet found a solution.”

In the same report a German foundation says it has globalised its investment and invested in higher risk assets.

According to Greenwich, the ongoing low interest-rate environment means more conversations are being held between German institutions and investment managers about implementing asset allocation changes.

However, Lydia Vitalis, a consultant at Greenwich Associates, says it is unlikely that dramatic shifts will be made quickly.

“It’s important to note that these questions have been in the background for some time, and it’s unlikely that we will see dramatic shifts very quickly,” she says.

But she adds: “The difference today is that more institutions are having conversations about how such changes could be implemented, and more institutions are reaching out to asset management firms and asking: ‘If we were to do this, how would we go about it?’”

Vitalis says that the need for returns presents a real opportunity for investment management companies capable of demonstrating a clear understanding of clients’ overall situations, portfolios and needs.

Firms like Allianz Global Investors and Union Investment are already taking advantage by engaging with institutions about broader portfolio strategies, the report finds.

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