GERMANY - German institutional investors are set to almost double their private equity investments.
German insurers and pension funds are planning to increase their market share by from an average of 1.2% to 2.2%, according to research from the University of Applied Sciences in Wiesbaden and European private equity fund-of-funds manager, Adveq.
Furthermore, investors are also expected to turn to fund-of-funds and withdraw from direct investments in private young companies.
A total of 511 insurance companies, pension funds, and pension schemes were interviewed. The trigger for the study was the introduction of an investment regulation in 2002 that broadens new investment opportunities in the insurance industry.
The study showed that besides attractive returns, the risk-bearing capacity of individual companies remained key to increasing private equity allocation.
Dr. Peter Laib, managing director of Adveq, said: In the future, competitive surplus investments will not be earned by investing solely in government bonds and listed stocks.
“Insurances and pension funds, which invest with the best private equity fund managers, will have a competitive advantage. In comparison with traditional assets, they will achieve above-average returns in the long term.
In Germany, direct investments in private companies are prevalent, but according to the study, more and more investments are turning to fund-of-funds led by specialists.
They will gain in importance, particularly for overseas investments in the United States, said Bruno Raschle, managing director of Adveq.
Private equity as adjunct to the traditional asset classes can make a contribution to portfolio optimisation. The professional management of high quality programs, which is still an exception in the current market, is absolutely necessary for successful investments, he added. The survey also reveals that only 13% of the companies that invest in private equity run a department that specialises in it. Managers' experience with this asset class is on average three years.
Prof. Dr. Stefan Jugel, who oversaw the report, said: The highly attractive market segment of private equity is still in its infancy.
“Lack of know-how and the stock market crash have affected this industry. At this point professional fund and fund-of-funds manager have to step into the breach and are ideally positioned to do so.
The Pensions and Lifetime Savings Association (PLSA) is in the process of convening an industry-wide group to take forward the work of the Institutional Disclosure Working Group (IDWG).
The Transfers and Re-registration Industry Group (TRIG) has given its support to an initiative which aims to complete occupational pension transfers within three weeks.
Scottish Widows has completed a bulk annuity deal for the Hitachi UK Limited Pension Scheme.