European investors set to move to alternative strategies, Aquila Capital predicts

Over the next five years, UK and European institutional investors will continue to move away from government bonds towards riskier asset classes, according to an independent study by alternative manager Aquila Capital on 255 institutional investors based in Scandinavia, Switzerland, Germany, Spain, France, Italy, Netherlands and the UK.

The single most popular asset class in the current portfolio structure of institutional investors is government bonds, with an average of 21.2% invested in sovereign assets.

In previous years, investors have increased their presence in government bond markets. However, following the financial crisis investors have decreased their exposure.

According to the survey, this trend is set to continue with 19.6% of institutional investors across Europe set to decrease the portfolio allocation of government bonds over the next five years.

This could be a reflection of the view that 53.7% of surveyed investors don’t think the euro will exist in its current form by 2015.

UK investors are the most sceptical to the continuation of the Euro in its current form, whileinvestors in mainland Europe, in particular France and Italy, believe the Euro will still exist as it stands today.

The survey found that attitudes to government bonds have changed, with 49.4% of European institutional investors believing sovereign issues will deliver negative returns.

Looking at a cross section of government bonds, the survey shows that investors have most confidence in Scandinavian bonds with a circa 65% approval rating of Norwegian and Swedish government bonds. German government bonds are rated in third place with 59.6% of investors surveyed indicating they would consider investing.

A majority of institutional investors indicated they would not invest in government bonds related to Greece, Portugal, Italy, Ireland and the survey also revealed low approval ratings for Japan. The survey also revealed that only 37.3% of institutional investors would consider investing in UK government bonds.

“Institutional investors are operating in an increasingly complex environment where investment risk profiles are continuously changing and we are seeing this reflected in their investment decisions. We are still seeing a high share of bonds, both corporate and government, in portfolios which underscores the low risk profile of investors. However with the changing risk profile of bond investments, investors are increasingly moving towards alternative investments in particular real assets, equities and absolute return,” said Roland Schulz, managing director at Aquila Capital.

 

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