EUROPE - European institutions investing in fixed income could soon find themselves squeezed between the need to increase returns and efforts by financial regulators to improve transparency and impose stricter standards for best execution, Greenwich Associates says.
A new Greenwich report analyses European fixed income investors’ move into complex products like credit and interest-rate derivatives, CDOs and other structured products and examines the role that the uncertain regulatory environment is playing in the decision-making within these institutions.
“Hedge funds are already crowding out some long-only investors for the attention and resources of fixed-income dealers,” says Greenwich Associates consultant Woody Canaday.
“There is certainly a concern that they might become even more valuable in the eyes of dealers under a more rigorous regulatory regime, under which hedge funds may be less constrained than other institutions.”
Greenwich says new financial regulations, including mandated changes in pension accounting in the United Kingdom, are creating incentives for institutions to shift assets from equities into fixed income — a move that was already underway among Continental institutions in the wake of their late 1990s foray into equities. At the same time, looming pension benefit obligations are pressuring institutions to increase investment returns – a goal seemingly at odds with the shift into fixed income.
Greenwich consultant Andrew Awad said funds are increasingly looking for alternatives with the potential for incremental returns.
Due in large part to this shift, European investors are placing a higher value on risk management and specialized expertise in individual fixed-income products with about 35% planning to hire in fixed income in the coming year, he added.
Of these, one-in-three plans to hire personnel for internal risk management positions, including half of all German institutions.
The Pensions Regulator (TPR) has granted 11 master trusts extensions to apply for authorisation, as it confirms it has received 22 applications ahead of the 31 March deadline.
Aegon Master Trust, Fidelity Master Trust and Ensign have sent off their authorisation applications to The Pensions Regulator (TPR).
Self-administered pension funds spent £15bn on payments to pensioners in Q4 2018, but received just £12bn in contributions (net of refunds), Office for National Statistics (ONS) data reveals.
Aberdeen Standard Investments (ASI) and Gresham House are to team up to form a joint venture.