Investment Strategies

Too Risk-Averse, German Insurers Suffer

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Why is my pension fund not investing in private equity?
  • Why it matters

    Why it matters

    German pension funds and insurers are in trouble – struggling with low yields in a record low interest rate environment. Private equity could be a way out.

  • Facts

    Facts

    • German asset managers rank at the bottom of the world’s top private equity investors. Deutsche Bank, with $2.9 billion in venture capital, is in 50th place.
    • A survey of 275 institutional investors in Germany concludes that many German asset managers are taking initial steps in the direction of private equity investment, but from a very low base.
    • While German institutional investors like insurers feel growing pressure to invest in riskier, higher-yield securities, they also feel constrained by tight regulation.
  • Audio

    Audio

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In the mid-1990s, Mark Wiseman wanted to buy a suit at Bergdorf Goodman, a luxury goods department store in Manhattan, but he was deterred by the store’s high prices. Two decades later, Mr. Wiseman, the head of the Canada Pension Plan Investment Board, bought the entire store.

He acquired Bergdorf’s parent company, the Neiman Marcus Group. It’s an investment he can afford, because he manages assets of more than $265 billion (€243 billion) for the pensions of 18 million Canadians. In the last 10 years, Mr. Wiseman achieved an average net annual return of 8 percent for the fund.

It’s a return that Germany’s struggling life insurance companies can only dream of. Most currently offer a guaranteed return of just 1.25 percent.

The old way of doing business simply doesn’t work anymore – and is even threatening some insurers with collapse. Investing in safe government bonds, the usual tack for institutional funds looking for long term stability, yields barely anything in these days of record low interest rates.

The key to investment success, instead, seems to lie in private equity. The Canadians are currently the world’s top investors in private equity, with total invested assets of $28 billion. The list of the 50 top investors in private equity continues with dozens of other Anglo-Saxon investment firms.

The first German name on the list, Allianz Capital Partners, an offshoot of the world’s largest insurance company Allianz, appears in 43rd place with a venture-capital investment of just $3.8 billion. Deutsche Bank, with $2.9 billion invested in private equity, barely managed to eke out a last-place finish among the world’s top 50 private equity investors.

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