Germany's BVV increases real assets, braces for more regulatory hurdles
BVV, the €25.1bn Pensionskasse for Germany’s financial industry, has shifted a “considerable volume” of new money into investment funds rather than direct holdings, according to its annual report.
Board member and CFO Rainer Jakubowski said the shift reflected a “change in strategy compared with mostly direct investments in the past”.
Last year, the Pensionskasse invested substantially in real estate and infrastructure funds, both equity and debt.
Similarly, new investments in the bond segment were not made into preferred direct holdings but funds within its absolute return bond strategy.
Jakubowski said that, for a German Pensionskasse using domestic accounting standards, directly held bond investments were the preferred means of achieving steady coupon returns, as they were mostly hedged against write-offs.
For 2014, the BVV granted its members a net interest rate on accrued assets of 3.8%, close to the rate granted the year previous (3.7%).
The return from investments was approximately 4%, but Jakubowski warned that the figure was “volatile and not predictable, whereas the BVV has to fulfil its liabilities continuously and not only on average”.
The CFO also claimed the unprecedented low interest rate environment created by the ECB would be a “major worry for much-needed occupational and private pension provision”.
His said this worry, combined with new regulatory requirements, would translate into more financial institutions transferring pension assets and liabilities to the BVV – last year, such transfers amounted to around €40m.
Jakubowski again stressed how the increase in regulatory requirements would burden Pensionskassen.
He said he had “given up hope” that EIOPA’s upcoming stress tests would preclude the introduction of holistic balance sheet approaches in the IORP Directive – “quite on the contrary”.
The BVV will, however, take part in the stress tests, Jakubowski confirmed.