German funds regaining taste for property

IPE reports that that according to a study Greenwich Associates, German institutional investors are shifting their portfolio slightly from bonds. Rather than buying stocks instead, however, many are getting back into the real estate.

In the first half of this year, the fixed income quota in German institutional portfolios fell from 68.7% in 2009 to 66.3%, the market research house concluded from a poll of nearly 230 large German institutions.

Looking at European fixed income, institutions cut back exposure from 65% to 60.2%, partly because of ‘active diversification efforts’, reflected in the quota for international bonds increasing from 3.7% to 6.1%, Greenwich said.

Rather than shifting these allocations to equity, however, institutions moved many of them to real estate, the company said.

It also found that these institutions aren’t expecting the kind of returns they once enjoyed, but that no huge allocation shifts can be expected until 2011.

Overall, German pension funds lowered their return expectations on all asset classes except hedge funds, for which expectations were up almost to the pre-crisis level of more than 7%.

For fixed income, the future return is expected to be 3.9% over the next five years after 4.2% in 2009, while for European equities expectations were cut from 6.6% to 6.2%.

Most polled institutions, despite being aware their current asset allocation would not yield the necessary returns over the medium to long term, indicated they would hold fire on major portfolio reconstructions until early next year.

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