GERMANY - Ärtzeversorgung Westfalen-Lippe (AEVWL), the €7.1bn pension fund for doctors, has allocated €600m to a Luxembourg institutional fund (FCP) which invests in private equity, hedge funds and structured products.
The FCP may soon be broadened to include real estate, said Andreas Kretschmer, head of investments at AEVWL, who was advised by German consultant Feri Institutional Advisors (FIA) in the pension fund's selection.
"We chose FIA following a beauty contest as they had the best concept on how to structure the investment," Kretschmer told IPE. "They also seemed to have the best connections to the Luxembourg regulator."
A mandate from one of Germany's best-known pension funds comes as welcome news for FIA, following an exodus of senior staff in past years. Most recent departures included its five-member hedge fund advisory team in March.
But FIA has since replaced the lost staff and Bernd Kreuter, an FIA managing director, has taken charge of a new 20-member alternatives team that includes hedge fund and private equity specialists.
Asked why AEVWL had decided on an FCP instead of Spezialfonds, the German equivalent, Kretschmer said an FCP afforded near "complete structural freedom to invest in alternatives" while still complying with German regulations.
To counter the competitive threat posed by FCP, the government is removing all investment restrictions on Spezialfonds as part of a reform of Germany's investment law. This reform is currently awaiting parliamentary approval.
Beyond the exposure to alternatives, AEVWL currently has slightly less than 20% of its assets in equities.
"Because we have already achieved our target return for this year, we recently reduced our share exposure," Kretschmer said.
Another 26% of AEVWL's assets are in real estate funds and other non-fixed income investments, fixed income and loan assets account for 42% and direct investments in German real estate make up just under 10%.
Kretschmer said for diversification purposes, AEVWL had recently committed €50m to real estate located in India and east Asia.
In its 2006 business report, AEVWL reported a net return of 5.8%, down from the 6% achieved in 2005.
On AEVWL's funding ratio, he said: "We don't actually give an exact figure, but I can assure you that it is currently well above 100% [of liabilities]. Nevertheless, in the near future there will be a need for a new calculation of liabilities due to the continued rise of life expectancy."