Austria’s APK Pensionskasse has plans to hold its equity strategy, while possibly setting on a new course for private debt investments, chief investment officer Manfred Brenner told IPE.
In 2022 “we wanted to physically hold on to our equity allocations because we expect a capital market recovery this year”, the CIO said.
The scheme believes that interesting opportunities will emerge in private debt in the next two to four years with restrictive lending conditions: “We could set a new course in this segment in the coming months,” Brenner said.
APK will likely not increase its allocation to real estate because of current capital market conditions – interest rate developments, financing, structural changes – even if the strategy foresees a slightly higher share of investments in the asset class in the medium to long term.
“However, individual opportunities could still be considered, [but] we are skeptical about the forecast on market development,” Brenner added.
Last year, APK tactically increased its allocation to alternatives by 3%, making now a total of 12% of the scheme’s investment portfolio, at the expense of equities and bonds.
It cut investments to European equities by two percentage points to 8% last year, and to “other bonds” by four percentage points to 35% of total assets, according to its 2022 financial statement.
Tactical measures, primarily heading transactions, helped fend off capital market corrections. The pension fund continues to maintain a stable investment programme especially in alternatives (private equity, infrastructure, and real estate).
“Due to a more tense or cautious exit situation, we are planning fewer cash returns than a few months ago. This does not mean that we are suspending our commitments, but we are reducing them slightly compared to our original plans,” Brenner said.
The development points to possibly lower return opportunities for private equity investments in the next two to four years, but the CIO is also convinced that in the event of corrections, investments would still bring positive returns in the medium-term, he explained, confirming the scheme will conitnue with its investment programme.
Brenner said APK had maintained its allocation to asset classes linked to interest rates, and noted that market assumptions about an imminent interest rate cut was too optimistically.
The scheme is, therefore, holding back on reallocations or increasing durations, being aware that there should be a good entry point by the end of the year. APK returned 4.1% at the end of the second quarter this year.
“Our strategic setup may also favour a counter-cyclical mindset. Compared to other Austrian pension funds, we also started setting up for alternative investment segments earlier, proceeding very carefully over the years not to become dependent on individual vintage years,” Brenner said.
APK plans to further develop its sustainable investment approach in the fourth quarter of this year, rolling it out to its portfolio, after introducing internal responsible investment guidelines.
The scheme is also setting up APK Spezialfonds to voice its interests in portfolios more strongly. “We are currently converting our bond strategies into Spezialfonds mandates,” the CIO added.
APK, which manages approximately €7bn in assets, does not have the weight to ink Spezialfonds mandates for micro investment strategies on, for example, special topics or country-specific equity funds, but in theses cases it demands to screen conventional fund products.