GERMANY – Ärtzeversorgung Westfalen-Lippe (AEVWL), a €6.6bn pension fund for physicians, plans to gradually raise its exposure to alternative asset classes like commodities and emerging market equities in 2006 to further boost returns.
“We have generated nice earnings on these asset classes in recent years, so we plan on re-investing those earnings in the current year,” said Andreas Kretschmer, managing director of capital markets at AEVWL, who spoke to IPE in an interview.
Kretschmer also said the fund was also considering investing more in private equity, though no concrete steps were planned. “From a regulatory standpoint, we can go up to 5% in private equity.”
During 2005 – another good year for shares – AEVWL raised its equity exposure to 24% of total assets from 14% to profit from the upswing. The fund’s investments in alternative asset classes are treated as part of its equity exposure.
AEVWL finished 2005 with a market return of 10%. However, under German accounting rules (HGB), which forces Versorgungswerke like AEVWL to build reserves, the fund’s net return for 2005 was 6% for 2005.
Net returns under HGB from AEVWL’s peers – notably the €5bn Ärtzeversorgung Niedersachsen (AEVN) and the €7.5bn Nordrheinische Ärtzeversorgung (NAEV) – have been comparable.
Regarding AEVWL’s remaining asset allocation, Kretschmer said the fund was 58% invested in fixed income, with 16% of that invested in bond funds. “Among those funds we have exposure to emerging markets like eastern Europe and corporate debt,” he said.
The final 18% of assets are allocated to real estate, including direct holdings in Germany as well as funds that are mostly European-focused. Kretschmer said that as part of its ongoing diversification, the fund was looking at the Asian real estate market.
“The fact is we can consider all of these possibilities because our risk budget can tolerate even more that our current asset allocation,” the fund executive said, adding that AEVWL easily passed all stress tests from German financial services regulator BaFin.
Versorgungswerke, which serve specific trades like physicians, lawyers and architects, are not directly overseen by the BaFin but instead by state authorities. However, state authorities tend to orient their regulatory approach to that of the BaFin.
At the end of 2005, AEVWL had around 33,100 contributing members, all of whom are physicians in the German region of Westfalen-Lippe. It has also has around 10,400 pensioners.