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Conservative German fund raises equity exposure

GERMANY - PKDW, a €1.1bn pension fund traditionally known for investing heavily in fixed income, has raised its exposure to equities and made an inaugural investment in private equity.

As a German Pensionskasse, or insurance-type scheme, PKDW allocates most of its assets - that is 80% - to fixed income.

However, PKDW has now begun to diversify its portfolio as its 2006 annual report stated the pension fund had raised its exposure to equities to 9.6% from 8.3% of assets.

Citing "the need for further diversification", the fund has also invested in private equity for the first time, allocating €7.5m to two fund-of-funds.

Turning to other asset classes, PKDW said it had €104m - 9.4% of assets - invested in real estate. Of that total, €92.4m was invested directly in Germany, with the remainder in European property funds.

"While the last few years were particularly burdensome for our direct investments, there was improvement in 2006. The return from these investments was in fact positive, but still below a satisfactory level," PKDW said.

Between 2001 and 2005, Germany's real estate market slumped amid a general slowdown of economic activity.

Back in the fixed-income realm, PKDW said, for the sake of diversification and return, it had raised allocations to asset-backed securities from €10.4m in 2005 to €13.5m in 2006.

"These securities are managed by external manages and mostly carry a triple ‘A' credit rating," the fund said.

Similarly, PKDW exited a bond fund in 2006 specialising in emerging markets after four consecutive years of decent returns.

On total assets, PKDW said its net return for 2006 was 5.1%, almost unchanged from the 5% achieved in 2005.

PKDW, based in the Ruhr valley city of Duisburg, was formerly a pension fund for the chemical sector before it opened up to other industries. It currently has around 50,000 contributing members and 13,400 pensioners.

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