Investors face "return-free risk"

An article in Spiegel Online examines the problems encountered by the world's most powerful investors - not the 1% of private capital, but those responsible for investing national wealth.

The man who controls more than €450 billion ($558 billion)..., Yngve Slyngstad is a relaxed Norwegian type... So what's it like to be one of the world's most powerful investors in 2012? "In the past, we searched for risk-free returns." He pauses for effect. "Today we know that what we mainly have are investments with return-free risk."

It's a common experience for the 49-year-old investor these days. His constant challenge is to find ways to invest a lot of new money and reinvest old money.

As head of the Norwegian sovereign-wealth fund, Slyngstad collects his country's oil revenues, which currently total more than €100 million -- per day. The fund is supposed to use these revenues to provide the country with prosperity for the long term. It's no easy task, because the government expects Slyngstad and his staff of more than 300 people to generate a 4 percent return on investment...

Between 1999 and 2007, the Norwegian sovereign-wealth fund achieved an average annual return of almost 6 percent, but during the last four years it has only been about 1 percent on average...

In the week before last, the German finance minister borrowed money for two years, without having to pay a single cent in interest. Even investors lending the German treasury money for a decade are currently satisfied with a premium of only 1.2 percent per year. The yields on US Treasury bonds and Japanese debt securities are at similarly low levels.

But what is helpful to many a finance ministry is frustrating for investors. When today's very low bond yields are adjusted for inflation, many investors end up with negative returns. Investing money is becoming tantamount to the destruction of assets, because there are few investments that actually produce any returns.

Most of these players are managing the money of small investors, billions in assets with which they do not want to gamble. Instead, their objective is to invest the money so that they can eventually pay out a sizeable pension

So where does these people put the money nowadays?  No details, but some discussion at Spiegel Online.