Sections

Bonds, alternatives drive 12% return at DAX-listed company schemes

Investments in alternative asset classes such as infrastructure, real estate, timber, private equity and private debt have helped listed companies in Germany to increase their pensions assets, according to Mercer.

Returns on pension plan assets in DAX-listed companies amounted to 11.9% for the last year, generated mainly by falling interest rates and their effects on long-duration bonds with relatively high yields, the consultancy said.

But alternatives also contributed in boosting pensions assets to a “new record high” of €228bn.

As old bond portfolios mature, Mercer expects re-investment to be channelled away from euro-zone government bonds.

Instead, the companies are likely to invest in corporate bonds and emerging market government debt, said Carl-Heinrich Kehr, a principal at Mercer Germany.

He said he also expected alternatives and equities to play a greater role in DAX companies’ portfolios in future.

Kehr told IPE infrastructure and real estate exposure was set to increase via debt and equity instruments and that private debt investments would increase as banks withdrew from their role as providers of financing to smaller companies.  

According to data collected by Towers Watson, allocation to investment categorised as ‘other’ has increased from 16% in 2013 to 19% last year, while exposure to real estate (2%) and bonds (55%) remained the same, and equities dropped from 24% to 21%.

Meanwhile, the drop in interest rates caused a further cut in the discount rate and subsequently an increase of liabilities by 25% to €372bn, according to both consultancies.

Towers Watson pointed out that the median discount rate, or Rechnungszins, now stood at 2.15% compared with 3.65% in 2013.

The general funding level dropped only slightly from 65% to 61% year on year, mainly because companies put additional money into pension plans amounting to €10.6bn, the consultancy said.

However, it added that the funding levels differed greatly from company to company depending on individual funding policy.

The Deutsche Bank has the highest funding level at 98%, while Deutsche Telekom, with its own Pensionsfonds and CTA, only has 23% of its DBO covered by pension assets.

Thomas Hagemann, chief actuary at Mercer Germany, said he expected the discount rate for German mid-sized companies reporting under the local HGB accounting standard to fall by “twice as much” in 2015 and then again in 2016 than in 2014. 

For more on the state of pension funding in Germany, see coverage in the upcoming April issue of IPE

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2503

    Asset class: Equities.
    Asset region: Emerging Markets.
    Size: EUR 30m.
    Closing date: 2019-01-31.

  • QN-2505

    Asset class: Real Estate Core/Core-Plus Multi-sector strategy.
    Asset region: Asia-Pacific.
    Size: $ 50m.
    Closing date: 2019-01-28.

  • QN-2506

    Asset class: Currency Overlay.
    Asset region: Global.
    Size: USD 4 bn..
    Closing date: 2019-02-11.

Begin Your Search Here