GERMANY - The €20.9bn BVV Pensionskasse for German banks saw returns from its bond-heavy portfolio drop last year and is now seeking to increase its diversification by investing in commodities.

After a 7.1% return on the portfolio and hidden reserves in 2008, the fund only saw a 5.1% return last year, Rainer Jakubowski, board member at BVV, told IPE.

This will not affect the net return (after setting aside buffers) passed on to pension fund members, which will be 4.5%, as was the case in the previous year. (see earlier IPE story: Germany’s largest pensionskasse returns 4.5%)

But the fund will change its asset allocation in the light of the low interest environment, starting by “activating a commodity mandate within the next weeks”, Jakubowski explained.

“We will also reduce the share of directly held bonds slightly, and over the medium-term emerging market bonds will gain weight in the portfolio,” he said (see earlier IPE story: German funds look to emerging market debt - HSBC).

In 2009 the fund reduced its equity allocation by another 6% to €4.5bn, while the allocation to direct and indirect real estate investments remains at 6.8%.

Within BVV’s alternative bond portfolio, hedge funds performed positively after the negative contribution in 2008.

The number of companies that are members of the BVV increased from 677 to 704 last year.

Meanwhile, the Pensionsfonds, which the BVV set up two years ago, reported net inflows of €38m from companies transferring their direct pension promises. The Pensionfonds is fully reinsured in the Pensionskasse and the same performance figures apply, Jakubowski said.