European retirement plans are refreshing their approaches to investment in order to generate returns, shows a survey by CREATE-Research and money manager Amundi.
Fears of another shock to the economy, along with fading trust in European politics and the rise of populism, are creating long-term investment risks, said a report on the survey. This has led to the rise of new asset allocations and thematic investing, according to the survey of 149 plans in Europe, representing €1.89 trillion ($2.14 trillion).
Almost two-thirds of respondents said they expect global equities and illiquid assets such as real estate, infrastructure and alternative credit to be favored by investors in a continued search for yield. One respondent quoted in the report said: "There's no fuel left in this bull market. There are no new booster rockets on the horizon."
Further, hedge funds were the least favored asset classes by the retirement plans.
By region, Asia ex-China, the U.S. and India were ranked as the top three markets most likely to offer decent returns over the next year.
Respondents also remained skeptical over the fuel behind the European Union's recent recovery, with 78% believing it is cyclical and due to synchronized global growth. However, one-quarter said Europe has finally healed following the 2008 global financial crisis.
Regarding new approaches to asset allocation, the report states diversification tools that were once peripheral are becoming mainstream, with 58% of respondents implementing risk-factor investing; 53% using uncorrelated absolute-return investing; and 48% turning to alternative risk premium strategies.
Respondents also agreed there is a greater need than ever before to develop the "suboptimal" European cross-border retirement plan market. Less than one-quarter of plans surveyed already are implementing cross-border plans, while a further 60% are in the "raising awareness" stage around these plans. About 40% said they expect the pace of adoption to increase.
"We need a one-stop-shop facility that reduces complexity in our pension plans in the EU," said one respondent.
"The widespread rise of populism at a time when central banks are unwinding quantitative easing has pushed pension plans in a new phase of heightened uncertainty," said Amin Rajan, CEO of CREATE-Research and author of the report, in a statement accompanying the report.
The report is available for download on the CREATE-Research website.
