Tuesday, July 16, 2019 Stamford, CT USA — The 2019 Greenwich Quality Leaders in Overall Continental European Institutional Investment Management, Allianz GIobal Investors and PIMCO, are thriving in this tough market due to their product offerings and their ability to use diverse capabilities to help European institutions shift their allocations as they face current market challenges.
In Germany, a diverse roster of 2019 Greenwich Quality Leaders in Overall German Institutional Investment Management shows that there is more than one way to succeed in this challenging marketplace. That list includes global powerhouses Allianz GIobal Investors and PIMCO, as well as German standouts – Union Investment and Quoniam Asset Management.
The 2019 Greenwich Quality Leaders in Overall U.K. Institutional Investment Management Service are Baillie Gifford and Insight Investment, two firms that have continued to deliver a high level of client service over multiple years.
All these asset managers have distinguished themselves from competitors by delivering superior levels of client service that help institutional investors achieve their investment goals and objectives.
Alternatives Dominate Demand Among European Institutions
In a clear sign of the times, European institutional investors say they are twice as likely to hire a new asset manager in private equity than in public European equities in the coming year. This powerful shift in demand is working to the advantage of large firms like Allianz Global Investors and PIMCO, which are capable of meeting institutions’ needs at both ends of the spectrum.
European institutional investors are increasing their exposure to alternatives at a time of historically low interest rates. Along with private equity and private debt, demand has climbed for real assets like infrastructure and real estate as institutional investors seek sources of badly needed yield.
Growing investments in alternatives are being funded with assets previously allocated to domestic and European fixed income, primarily government bonds. Over the next three years, European institutions overall expect to significantly reduce allocations to domestic government bonds and European government bonds. Meanwhile, by margins rarely seen anywhere in Greenwich Associates global research, European institutions are planning major increases in allocations to private equity, infrastructure, real estate, and private debt.
Institutions are moving quickly to implement those allocation shifts. Almost one in 10 institutions report plans to hire a new manager in alternatives in the coming 12 months. That tops the roughly 7% of institutions planning to hire a new manager in equity or fixed income. About 5% of institutions plan to hire a new manager in private equity, roughly twice the share planning to hire a manager for public European equity.
Challenges in Germany
German institutional investors face the same challenges as their peers in Europe—only more extreme. An extended period of historically low and even negative interest rates has put European institutions under considerable pressure. This situation is exacerbated in Germany by institutional portfolios that are dominated by fixed income. Allocations to fixed income average 82% of institutional assets in Germany. That’s the highest in Europe, topping the 77% in France and 68% in Italy.
“For the past decade low yields on these fixed-income allocations have depressed overall rates of return on portfolio assets,” says Greenwich Associates Managing Director Markus Ohlig. “German institutions are now taking action to address these issues, and the primary step they are taking is to increase their investments in alternative asset classes.”
Regulations Hasten the Advance of ESG
The steady advance of ESG investing across the European institutional marketplace is getting an extra push from European regulators. In 2018, the European Commission released its action plan on financing sustainable growth. Those proposed rules have helped fuel the spread of ESG from the early adopters in the Nordics, Netherlands and France to the more hesitant institutions in Germany and Switzerland.
In the Netherlands, close to 100% of institutional investors consider ESG criteria when hiring managers, as do more than three-quarters of institutions in the Nordics and 60% in France. The share of institutions taking ESG into account when hiring managers increased to 40% in 2019 from 29% in 2018 in Germany and to 36% from 24% in Switzerland.
Nordic institutions are at the forefront of the growing movement to track the carbon footprints of their portfolios; 43% are already tracking carbon exposure, and another 20% expect to start doing so in the next 24 months.
Click here for the list of 2019 Greenwich Quality Leaders in Overall Continental European Institutional Investment Management.
Click here for the list of 2019 Greenwich Quality Leaders in Overall German Institutional Investment Management.
Click here for the list of 2019 Greenwich Quality Leaders in Overall U.K. Institutional Investment Management Service.