EUROPE - Institutional investors across Europe have shifted their fixed income exposure from sovereign debt to corporate bonds, with investment in the asset class reaching its highest level in five years, according to IPE's European Institutional Asset Management Survey.

The survey, conducted in cooperation with Invesco Asset Management, found that fixed income allocations were on the rise, accounting for 58% of respondents' portfolios, up from 51% last year.

However, 31% said they planned to slash government and sovereign debt - a 10 percentage point increase over last year's result.

Only 9% - a 1 percentage point increase - said they planned to offload corporate bonds. In contrast, 22% said they would be increasing bond holdings, with corporate bonds by far the most popular option among investors, with 30% opting for these over government debt.

Michael Gartmann, managing director and head of German institutional business at Invesco, noted that fixed income allocations were at their highest since 2006.

"Fixed income continues gaining more ground," he said. "Last year's freefall in equities appears to have been halted with just a small decline, and the sharp reduction in cash suggests investors have spotted more attractive opportunities."

While a number of markets, such as France and the Central and Eastern European (CEE) countries, increased fixed income exposure, Italy and the Benelux nations opted for a higher investment in equities.

The Benelux countries saw virtually no funds held in cash, while their real estate exposure increased by a third, and equity investment went from 33% in 2009 to 41% in 2010.

Italy, meanwhile, saw equity investments increase from 19% in both 2008 and 2009 to 34% last year.

The survey - which canvassed nearly 150 pension funds and insurance companies with more than €1.2trn in combined assets under management - also found that consultants had fallen further out of favour across most regions, with a 3 percentage point drop in overall usage to only 49%.

Consultancy use in the UK remained steady at 83%, while the CEE countries showed a significant dip, dropping from 33% to just 7%.

France, Switzerland and Germany all saw smaller downturns, while the Benelux countries indicated a small uptick in consultancy use.

Ireland bucked the downward trend, with 87% of respondents using consultants, up from 57% year on year.

Nearly two-thirds of respondents said they employed consultants for asset allocation decisions, while 54% said they used them to select an investment manager.

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