Investors See Rates, Regulations as Biggest Risks, Allianz Says

Institutional investors see rising interest rates as the biggest risk to the performance of their funds over the next three years, Allianz Global Investors said, citing a survey.

“Like the investors surveyed, we expect monetary policy to be accommodative for quite some time, but respondents are understandably already preparing for a world where interest rates rise from their historic lows,” Chief Executive Elizabeth Corley said at a press briefing today in London. “Bond holders are concerned about capital losses when rates start to rise.”

Investors also judged prices of developed-market government bonds and high-yield corporate debt as being the most inflated among asset classes due to record-low borrowing costs that has created distortions, according to the survey, which was based on responses from 390 investors in 41 countries.

“Institutional investors are recognizing the long-term risk of short-term safety,” Corley said. “It’s important that investors take a smart risk. Sovereign debt has morphed from a source of safe return into a source of risk.”

The survey also showed that investors see regulation as holding back annual investment performance by an average of 2.3 percentage points.

While investors acknowledged the need for and benefits of “fact-based” regulation, 73 percent of the respondents said regulations came with a price and more than half said they expected the policy climate to worsen over the next three years, according to the survey.

Allianz Global Investors is a unit of Munich-based Allianz SE, and manages the equivalent of $413 billion.

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