AUSTRIA - Distortions in the bond markets should be seen as "opportunities", according to Austrian pension fund APK, which is now considering other forms of "outside-the-box" diversification.
Christian Böhm, managing director at the €3bn scheme, told IPE that APK was looking at fixed income arbitrage as one possible hedge fund strategy this year.
"Some of the distortions on the bond markets are politically motivated, and this creates opportunities," he said.
Böhm conceded that fixed income arbitrage was not without risk, but he said that risk was currently smaller than the interest rate risk in the government bond sector.
"We are not looking to categorise risk, but we are adding certain strategies if they fit our overall strategy and add return," he said.
Böhm said the fund had "put aside" benchmark-thinking a long time ago, and that, while diversification remained "key", that did not mean APK had to invest in a certain asset class "just to meet a quota".
He added that "thinking outside the box" - as opposed to following a benchmark - had "saved" the fund from peripheral European bonds.
Böhm said APK would not increase its exposure to German Bunds this year, as it "made little sense to add net negative yield to the portfolio".
He also claimed the fund's strategy of managing downsize risk, without "freezing investments completely", had helped APK outperform the market.
"We were invested in December and at the start of 2012, when other funds were still looking to re-invest," he said.
The managing director warned that current regulatory trends - at the local and European level - would "implicitly" create more procyclical market behaviour.
Last year, the Pensionskasse reported a return of -2.5% compared with the market average of -2.96% and the multi-employer fund average of -3.3%.