GERMANY - The €53.3bn Versorgungswerk for the province of Bavaria reported a 4.9% return for 2010.
Daniel Just, head of asset management at Bayerische Versorgungskammer (BVK), told IPE the fund last year reduced its fixed-income portfolio and “considerably lowered” the average duration to around 5.1 years.
“We do not apply duration matching, as we have a different remit to life insurers, which have to match a guaranteed interest rate,” he added.
The BVK’s 2010 equity quota of 8% has since been increased to 9%, with the same percentage being invested in alternative investments including hedge funds, private equity, infrastructure, timber and commodities.
Recently, the BVK awarded hedge fund specialist Man Group a €1.2bn managed account mandate.
Another 10% of the fund is invested in real estate - half in Germany, half further afield.
At the end of last year, Just said the BVK had looked into the creation of a real estate fund of funds that would be internationally diversified in prime properties but “not treading well-used paths”.
The BVK is a conglomerate of 12 different funds administered jointly, but with individual portfolios.
“In the crisis,” Just explained, “we learned that an agglomeration of capital can lead to huge problems, endangering the system when things go wrong. Where there are more diversified, smaller units, it is less relevant to the economy.”
But he added that, for negotiating fees, administrative structures and costs, the economies of scale were important.
“The balance has to be found somewhere in between, and pluralism is part of the risk management,” he said.
To read more about the structure and operations of Versorgungswerke, see the April issue of IPE.