GERMANY - The chief financial officer of Germany's €6.3bn Bayer-Pensionskasse, Stefan Nellshen, has said the fund is currently considering the creation of an alternatively-weighted equity portfolio, but that the risks posed by such an investment were still cause for concern.
During a detailed discussion of risk management for corporate pension schemes at the 14th Annual Uhlenbruch Portfolio Management conference in Frankfurt today, Nellshen spoke about various downside risk protection measures for equity portfolios, including stop losses, zero-cost option 'collars' and CPPI - concluding that the optimal solution would be a mix.
Regarding the introduction of an alternatively-weighted equity portfolio - such as fundamentally-weighted or minimum variance indices - he said it was "something we are thinking about in detail at the moment", but that implementation presents risk-management challenges.
Asked about risk solutions that could be incorporated into equity market mandates rather than implemented as an overlay, he indicated that the scheme was interested in alternatively-weighted indices and portfolios. However, he pointed out that these solutions mitigate rather than eradicate the risk of extreme losses and did not obviate the need for downside risk overlays.
"They introduce other considerations," he added. "We haven't implemented a minimum variance strategy, for example, but if we did how would it impact our hedging strategy? We may find ourselves implementing an equity strategy for which there is no liquid derivatives market."