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German roundup: Allianz, SD-M, Towers Watson, DAX

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  • German roundup: Allianz, SD-M, Towers Watson, DAX

GERMANY - German pension funds apply socially responsible investment (SRI) criteria only do so for certain investments, as they still fear it might dampen returns, according to a joint study by Allianz Global Investors and SD-M.

In a preliminary statement on the findings in July, Allianz and investment consultancy SD-M found that approximately 7% of assets in municipal and local church funds were invested according to SRI criteria, but only 2.8% of those in first-pillar funds for self-employed (Versorgungswerke).

It also found that federal state funds were lagging behind.

According to the report, which was supported by the German environmental ministry, SRI criteria are generally applied to real estate, private equity and equity funds, but hardly ever to fixed income, which still makes up the lion's share of German portfolios.

James Dilworth, chief executive at Allianz Global Investors in Germany, said sustainability and strong returns were "still viewed as opposites", even though more and more studies suggest sustainable investments have a "positive effect" on a portfolio's risk/return profile.

Survey respondents said the state should set minimum sustainable development criteria that could then be applied as an overlay to existing portfolios and fund structures.

They also criticised the fact that many asset managers do not approach them about SRI.

In other news, Towers Watson has published its latest German Pension Finance Watch report, showing a decrease in funding levels in pension funds at German listed companies.

DAX companies have on average lost 1.2% since the beginning of the year, mostly suffering from falls in equity investments, which make up one-fourth of portfolios on average.

Assets in the pensions schemes declined by 3% quarter-on-quarter to €159bn.

At the same time, pension liabilities increased as the discount rate dropped by 34 basis points to 5.35% over the last quarter. This pushed funding levels down 5 percentage points to 62%.

Nevertheless, Thomas Jasper, head of occupational pension consulting at Towers Watson Germany, said that, despite this "perfect storm-scenario" of falling returns and increasing liabilities, the negative effect on pension plans was 'moderate'.

He added that, over the long term, funding levels had increased consistently from just over 50% in 2000 to 66% in 2010, and that further funding would continue.

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