Many European Institutions to Stay Put on Asset Strategies

January 12, 2010 ( – New research indicates that after reviewing the events of the prior 18 months and analyzing the performance of their investment portfolios, many European institutions have come to the conclusion that their strategies were, on the whole, sound.

A sizable share of the institutions participating in this year’s Greenwich Associates European Investment Management Research Study indicated they are planning to stick with their general philosophy of creating broadly diversified portfolios. “To that end, these institutions intend to rebuild allocations to European equities and continue the process of adding to allocations of international equities and alternative asset classes that they began before the onset of the global crisis,” said Greenwich Associates consultant Tobias Miarka, in a press release.

However, the research indicates a split on post-crisis investment strategies as it also found a substantial number of institutions are contemplating fundamental changes to their investment approach. Particularly in markets such as Germany and France, where highly regulated institutional investors like insurance companies tend to have a strong influence on the overall market, institutions appear to be reconsidering some of the basic philosophies underlying their pre-crisis strategies and, as a result, are moving quickly to take down risk levels in their portfolios, the press release said.

The global market crisis of 2008 – 2009 had a dramatic impact on institutional portfolios across Europe, with equity holdings shrinking significantly as a share of total assets, and fixed-income allocations expanding. These shifts were not just the result of market impact, Greenwich says. Many European institutions responded to the uncertainty of global crisis by proactively increasing cash positions, shifting assets into passive strategies, and seeking refuge in familiar asset classes, namely European fixed income.

Looking ahead to the coming three years, the study found half of European institutions expect to make significant changes to their active European equity allocations, but they are split on direction, with 37% planning significant increases in these allocations and 13% expecting to make significant cuts. The situation is similar with regard to actively managed European government bonds, in which 43% of institutions are expecting to make a significant change in allocation but are divided between 19% planning to increase and 24% planning to reduce.

External Managers Lose Out

Greenwich Associates’ European Investment Management Research Study finds Europe’s asset managers losing out. The plunge in asset valuations during the global financial crisis has been followed by a movement on the part of European institutions to reduce their reliance on external managers and bring assets in-house. As a result of these interconnected trends, the pool of assets allocated by European institutions to external managers contracted by 4% from 2008 to 2009.

In another blow to asset managers, “the assets that are allocated to external managers are increasingly flowing into lower margin products such as fixed income, and demand for passive strategies is on the rise,” Greenwich Associates consultant Marc Haynes noted in the press release.

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