German investors embrace private equity. Although they lag their international counterparts, allocators in Germany are increasingly
looking to PE to diversify their portfolios.
Institutional investors in Germany are committed to private equity. The ninth BAI Investor Survey was our most comprehensive to date, with responses from 106 institutional investors with more than €2.1 trln in AUM, as well as 101 BAI member companies. We are delighted that three quarters now have a private equity allocation, ranging from 1% of AUM to 20%. Portfolio diversification was cited as an attraction of alternative assets by more than 90% of investors, with 80% also citing the good risk-return ratio.
BAI’s mission is to improve public awareness, create internationally competitive and attractive conditions for alternative investments, and represent the industry’s interests to politicians and regulators. So we are delighted with the increasing awareness of, and commitment to, alternative assets including private equity. We expect the average institutional investor in Germany to increase their exposure to alternative investments from 23.2% today to 26.4% over the next few years.
However, German investors in private equity have some way to go to catch up with international allocators, particularly those in the US. According to Preqin’s H2 Investor Outlook, worldwide institutional investors’ private equity target allocation is now at a staggering 13.8%. Only a few German investors report such a high strategic asset allocation (SAA).
Investors in our survey plan to increase their allocations across alternatives, particularly to infrastructure equity (61%), private equity (57%), infrastructure debt (50%), private debt (45%), and venture capital (33%). German institutional investors will soon have, on average, 5% (including those with no allocation) of private equity exposure in their portfolios. A quarter of German investors now allocate to venture capital.
Despite the challenges caused by infl ation, rising interest rates, and the possibility of recession, investors in Germany remain committed to ESG.
There is no doubt that ESG will become an even more signifi cant part of the industry in the future with the progress of the EU Sustainable Finance Initiative.
Is it all good news? It remains the case that German fund structures play no, or only a subordinate, role, with most German investors preferring Luxembourg vehicles. This highlights the need for reform in Germany.
During the COVID-19 pandemic and today, as many economies are at risk and multiple asset classes undergo volatile times, private equity once again proved its worth as a performance and stability anchor in the institutional portfolio. The fact that only one of the 106 German investors surveyed wants to reduce their PE allocation speaks for itself.
