The sheer amount of new regulation is giving European pension funds less room to manoeuvre, according to Barbara Rupf Bee, head of Global Client Group for the EMEA at Deutsche Asset & Wealth Management (DeAWM).
Rupf Bee told IPE that pension fund trustees were now even less inclined to take risks that might lead to lower returns than they were before the financial crisis – “even if you take the low-interest-rate situation into account”.
She added: “We went from the prudent-person principle to indecision due to the potential personal impact.”
The overall increase in new regulation, she said, marked a “significant change” for the market that increased costs and “harmed” end investors.
But she acknowledged that investors were now taking a “more informed” approach to their strategies in general, including passive and alternative investments in particular.
As an example, she cited hedge funds, which gained “more transparency through UCITS structures” and offered an “indirect hedge” for many investors.
“After the market downturns of recent weeks, we get a lot of clients asking how they can include short positions in their portfolios,” she said.
But Rupf Bee stressed that hedge funds and other alternatives were no longer simply added to portfolios as individual asset classes.
Instead, investors are now applying “alternative strategies to other investments” such as long/short equity positions or distressed debt.
She pointed out that the shift away from fixed income had been relatively slow for institutional investors in Germany, where the bursting of the dotcom bubble is still “more present than with other investors”.
German institutions, she said, “seem to prefer to allocate to real estate and private equity rather than increase their equity holdings”.
Rupf Bee argued that, overall, investors were “much more aware of their individual portfolio’s risk structure” and looking for “real bespoke solutions” rather than investment approaches.
“Asset managers are approached directly to offer these solutions individually for each client,” she said.
She described this new client approach as “product agnostic”.
According to her, investors are looking for modular solutions into which they can fit risk overlays and asset allocations.
For smaller institutional investors, the multi-asset approach has become increasingly attractive, as they have “found it difficult to get asset timing right themselves”.
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