German insurers to step up allocations

Greater return requirements are expected to prompt German insurance companies to double their target allocations to private equity, says a new survey.

German insurers that have invested in private equity before are planning to increase their allocations to the asset class, according to research commissioned by Adveq Management, the Switzerland-based fund of funds group. Some 40 per cent of German insurance company have participated in private equity to date.

Having analysed findings from a survey in which 102 of Germany’s 732 insurance companies participated, Adveq expects these investors to nearly double their target allocations to private equity, from an average of 1.2 per cent at present  to 2.2 per cent going forward.

According to Peter Laib, a managing director at Adveq, insurers are driven to greater exposure to private equity by return requirements which they cannot satisfy following more conventional investment strategies. Said Laib: “Today, institutions have return requirements of 5 to 7 per cent, and insurance companies are realising that based on their traditional investments, they cannot meet those requirements. They are looking for returns that are significantly above the public equity market. We found that although the return expectations on private equity have decreased, they are still around 12.5 per cent.”

According to those polled, private equity returns are expected to deliver a premium of some 430 basis points over public equity.

Adveq also found that the primary beneficiaries of the growing institutional appetite for the asset class would be funds of funds, whose share of total private equity assets is set to increase from 30 per cent today to 38 per cent in future. 56 per cent of future commitments would go into direct fund investments, while direct company investments are expected to reduce from currently 18 per cent to six per cent.

One insurance company active in Germany that is currently in the process of rolling out a substantial private equity fund of funds investment programme is AMB Generali, which is looking to invest E1bn in the asset class.

Germany’s most active investor in international private equity is Allianz Group, which through its Allianz Private Equity Partners division has a mandate to invest around E1bn per year in European private equity.