Allianz Global Investors and PIMCO Named 2013 Greenwich Quality Leaders in German Investment Management

German institutional investors are adjusting investment strategies and portfolio allocations in an attempt to generate yield amid low interest rates and declining return expectations. As they do so, they give top marks to Allianz Global Investors and PIMCO — the 2013 Greenwich Quality Leaders in German Investment Management.

Every year, Greenwich Associates interviews more than 200 German institutions about their investment portfolios and strategies. In 2013 nearly 250 Institutions were asked to name the external asset managers they employ and to rate them according to a series of investment and service criteria. Firms that receive quality ratings that top those of competitors by a statistically significant margin are named Greenwich Quality Leaders.

“Historically low interest rates are pressing German institutional investors to diversify their investment portfolios and to utilize specialized strategies as they seek out new sources of yield,” says Greenwich Associates consultant Lydia Vitalis. “In this dynamic environment, institutions single out Allianz Global Investors and PIMCO for superior quality in investment management.”

Institutions Hunt for Yield
Across all German institutions, mean actuarial earnings rates declined from 4.3% in 2011 to 3.7% in 2013 and institutions have also reduced their expected rates of returns on all asset classes. In 2011, expected annual returns on fixed income holdings for the next five years averaged 3.7%. By 2013 institutions expect only 2.9%. Expected returns on domestic and European equities dropped from 6.3% to 5.9% over the same period, and expected returns on international equity have fallen to 6.2% from 7.0%.

With German institutions currently devoting more than three quarters of investment capital to “return seeking” as opposed to “liability-matching” assets, asset return expectations are most important key driver behind significant allocation changes. As part of their efforts to enhance returns in an environment that remains very risk sensitive, they are increasingly diversifying their portfolios and reshaping the fixed income landscape for institutional investors.

As they seek out sources of yield, German institutions are reducing allocations to passive fixed income while diversifying active fixed-income portfolios. Over the past 12 months institutions have increased allocations to active global bonds, emerging markets debt and high yield. More broadly, expectations that the current low-interest rate environment will persist longer-term have prompted a dramatic extension of duration with institutions now report holding virtually no fixed-income assets with less than five years duration. Expectations to decrease Government Bond exposure further also continue, with Emerging Market debt, High Yield and Active Global Bonds anticipated to continue to be beneficiaries over a three-year time horizon.

Expectations that this diversification trend would also benefit alternatives appear yet to materialize, as regulatory and structural challenges persist. However, a net +26% of investors still expect to significantly increase infrastructure exposure in the next three years and a net +25% plan to meaningfully increase allocations to real estate. “Institutions were also optimistic about alternative allocations last year, but fell short of goals,” says Greenwich Associates consultant Marc Haynes. “But investors are hopeful that the development of the limited partnership regime under the auspices of the AIFMD — the so-called “investment KG” — will prove supportive in the future.”