GERMANY – The BVI, Germany's investment fund association, has said that Spezialfonds investors would be eager to increase their exposure to riskier, higher-returning asset classes "if Solvency II did not scare them off".

Last year, the BVI conducted a survey of more than 130 German institutional investors, 40% being pension funds and insurers, which could fall at least partly under the Solvency II regulations, as they are covered by German insurance regulations.

Thomas Richter, chief executive at the BVI, said many of those investors would like to double their equity exposure, but that the anticipated high capital requirements under the imminent Solvency II regulation had "put them off".

Similarly, he said, many institutions would like to hike their exposure to real estate from 6% to 14% and the share of Spezialfonds investing in alternative assets from 6% to 15%.

"For the pension assets to be invested at a good return and protected from inflation, institutional investors should be allowed to increase their exposure, especially to real estate and infrastructure investments, without too high capital requirements," he said.

He added that developed market bonds could no longer achieve the returns needed by institutional investors.

According to the BVI survey, the share of fixed income Spezialfonds in institutional portfolios will go down from 61% to 41%, with institutions mainly getting rid of government bonds and covered bonds.

It expects exposure to corporates, on the other hand, to increase slightly from 15% to 19%.