EUROPE - Institutional investors in Europe are hindered by guarantees to grow returns and in their ability help stabilise capital markets, according to Peter Brezinschek, chief analyst of Raiffeisen Zentralbank (RZB).
Analysts believe long-term institutionals investors such as pension funds and endowments helped to stem losses in the US markets which, compared to European stock exchanges, has so far sustained less damage during the crisis, as the large number of institutional investors which have a long-term view on their investments did not "panic" as other investors did.
In Europe, institutional investors have yet to reach such critical mass and play a similar part in helping to stabilise stock markets though Brezinschek told IPE their mere size is not the only reason.
"Mandatory guarantees on capital in pension funds, such as they exist in Germany or Switzerland, are not helping," he told IPE.
During those times when markets go up, these funds have to make additional payouts, yet when markets go down they too go down with the markets, without having money left to support them, he explained.
"Guarantees do not allow funds to make full use of equity investments," he said.
Brezinschek would like to see more choice in investment strategy but stressed people who want guarantees "should not expect to get high returns".
Furthermore, members in pension funds should be obliged to keep the money in the funds for at least 10 years, he claimed, rather than three years as is possible in some pension funds.
"Pension funds which invest in equities over the long-term could even get through a crisis like this," he is convinced.
Brezinschek thinks institutional investors in central and eastern Europe in particular will reach sufficient size over the coming years to help stabilise capital markets.
"They need (the additional pillar) more than Western Europe as their population decreases over the next decades," he added.
If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com
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