A large percentage of German institutional investors plan to leave their equity allocations at low levels over next three years, potentially relegating equities to the status of a niche asset class in the country for the foreseeable future, according to research and consulting firm Greenwich Associates’ 2009 German Investment Management Study.
Although 40% of German institutions interviewed by Greenwich in Q2 2009 said they planned to increase their equity allocations over the next three years from the diminished levels in 2008 and 2009, 49% said they planned to leave allocations at their current, much-reduced levels.
From 2008 to 2009, the drop in global equity values caused by the global financial crisis prompted German institutional investors to cut equity allocations to 6.4% from 12.1%.
“Of course, we do not expect German equity allocations to remain at close to 6%,” said Tobias Miarka, consultant, Greenwich Associates. “However, our research results make clear that German institutions have no plans to reconstitute equity allocations to anything close to levels that existed before the market collapse. There has been a fundamental reassessment of portfolio risk profiles.”
Meanwhile, fixed income investment grew to 70.7% of German institutional assets in 2009. A large proportion of the German institutions interviewed said they plan to keep fixed income levels steady at the current high levels.
Greenwich also reported that German institutional investors have lost confidence in external asset managers. The drop in asset values associated with the crisis has prompted institutions to greatly reduce the assets they allocate to external managers, according to the firm, and in many cases they are not looking back. As they look to eliminate the risk from their investment portfolios by shifting assets into fixed income and other lower-risk asset classes, many institutions are bringing the management of these assets in-house. This poses a serious challenge to both investment managers and consultants in Germany, Greenwich asserted.