Pension and insurance funds in the Nordic region intend to increase their allocation to real estate, hedge funds and private equity and decrease their fixed income and equity holdings, according to the results of nrpn’s latest quarterly investor survey.

The survey, which encompassed 11 pension and insurance funds with some €85bn of assets under management, found that more than half (six) of all respondents plan to beef up their exposure to property over the next six months while the remaining five expect to keep their allocation constant.

Five investors also plan to increase their exposure to hedge funds and five intend to push more of their holdings into private equity. Furthermore, four respondents said they intend to increase their commodity holdings.

Private equity push

Although five investors said that they intend to raise their exposure to private equity before the end of the year, the survey also found that Nordic pension and insurance funds are not completely at ease with the asset class. Three respondents said that they were concerned about the level of pricing in the market (see feature, page 29), two said that they were most worried about risk and four had doubts about market transparency. Another two investors were most alarmed by a lack of good managers and advice.

The findings on future allocation follow on from that of our last survey in which five investors said they intended to raise their exposure to private equity, four planned to increase their hedge fund holdings and four intended to push more of their funds in real estate. One investor also said it would increase its allocation to commodities.

Equities and fixed income

But while alternatives are proving to be a big draw for investors, more than a quarter (three) of respondents said that they will cut into their fixed income holdings over the next six months with another three respondents indicating that they will reduce their exposure to equities over the same period. Four investors, however, said that they will increase their equity holdings and four respondents intend to keep their equity allocations unchanged.

At the same time, investors indicated that they are more pessimistic about future equity market returns. In our last survey investors predicted that Japanese equities would turn in 8.4 per cent over the following six months but in our latest survey that figure was revised down to 3.92 per cent. Similarly, investors predicted that US and European equities would pull in 5.22 per cent and 5 per cent respectively three months ago but investors have now pushed those estimates down to 1.78 and 4.64 per cent.

Consequently, more than 50 per cent of investors (six) believe that world growth prospects will remain neutral over the next six months compared to just one investor in our last survey. At the same time, five respondents expect world growth prospects to remain positive and not one expects growth prospects to be negative.

“The second quarter and the early summer have been periods of pretty strong growth around the world. But we have started to pick up signs that this will be changing in the second half of 2006 and particularly in early 2007,” Emanuele Ravano, managing director, co-head of the European strategy team at Pimco, told nrpn.

He added: “Looking at Europe, we see three main arguments for slower growth. First, there are signs of a peak in industrial confidence, which has really been the engine behind the current strength of the European economy. Second, consumers’ real disposable income is very weak by historical standards. Third, we identified several headwinds that could reduce growth in the coming quarters.”

The survey also asked investors to predict at what price they thought US light crude would settle over the next six months and all of the 11 polled investors said that they expected the barrel price of oil to end the year in excess of $65 with three of those same investors expecting prices to finish above $75. In our last survey, only one investor thought that prices would exceed $75 while one investor said that prices would settle in the $35 to $44 range.

For the second survey in a row not one investor expects the European Central Bank (ECB) or the US Federal Reserve (Fed) to increase interest rates more than three times over the next six months – in fact, on this occasion, not one respondent expects either to raise more than twice – with four respondents expecting the ECB to raise rates twice and three expecting the Fed to raise rates twice, according to the results of nrpn’s latest quarterly investor survey, which took in 11 pension and insurance funds with €85bn of assets under management.

At the same time, two investors expect the ECB to leave rates unchanged and four investors expect the Fed to leave interest rates untouched. A further five respondents expect the Fed to increase rates once and five investors believe the ECB will increase rates once over the next six months.

Printer friendly version

Email this article to a friend