GERMANY – Nearly all German institutional investors are unwilling to take any risk when investing on capital markets, according to a new study released by German asset manager Union Investment.

The study, conducted by the business consultancy Roland Berger, indicated that 86% of investors were risk-averse.

“On this point, there is clearly a deficit in institutional investor behaviour. That’s because investors can only reach their investment goals by effectively dealing with risk…This is especially true in the current low interest rate environment,” commented Alexander Schindler, board member at Union for institutional business.

Roland Berger interviewed 173 German institutional investors, including banks, insurers, pension funds, corporate investors and foundations. Together, they have €220bn in assets.

The study also indicated that “external and internal barriers” were the reason why German institutional investors were too cautious. More than 50% said the barriers prevented them from taking any risk when investing.

According to the study, the biggest external barrier is the German financial services regulator BaFin. Other external barriers included International Financial Reporting Standards, a transparency requirement for using derivatives as well as the new capital adequacy regimes Basel II (for banks) and Solvency II.

Internal barriers to risk-friendly investing were limits on the investment strategy, for example exclusive exposure to investment grade bonds, the study added.

“We in Germany always ask what do we still have to regulate? We should instead by asking ourselves: Where is the potential for more de-regulation,” said Schindler.

Generally speaking, German pension funds have between 70 and 90% invested in investment grade debt, most of which issued by governments. Up to another 10% is allocated to equities and the rest to alternative investments like real estate, private equity and hedge funds.

Industry experts note however, that following this year’s stronger equity markets, pension funds have begun to slightly increase their exposure to that asset class.

Separately, Union, the asset manager for Germany’s co-operative bank sector, said inflows to its institutional funds totalled €9bn in the first nine months of 2005, bringing its assets under management to €56bn. Around 40% of the new money was from institutional investors outside the co-operative sector.