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IBM Germany pension fund makes first foray into private equity

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IBM Germany is preparing to diversify its pension portfolios by making its first foray into in senior secured loans and private equity.

Speaking at the recent Handelsblatt conference in Berlin, Hans Dieter Ohlrogge, chairman at the company’s Pensionskasse and Pensionsfonds, said the former could not have considered private equity sooner due to the regulatory uncertainty for insurance-based vehicles surrounding the implementation of the Alternative Investment Fund Managers (AIFM) Directive.

“But now we know we do not need complicated structures to invest in this asset class, we can start choosing managers and decide on which segment to invest in,” he said.

Amendments to the new investment rules – applicable to insurers, Pensionskassen and Versorgungswerke – clarify which funds qualify for investments in private equity, direct lending or real estate.

Any closed AIF or similar vehicle domiciled within the EEA or OECD with a sufficient license can be used to invest in private equity up to a limit of 15% of the total portfolio.

Ohlrogge said it was important for the Pensionskasse to “really understand the products and their mechanics” offered in any asset class.

“This has so far not been really the case for private equity, and we do not like managers that play their cards close to their chests,” he said.

Ohlrogge said the pension fund would “like to do buyouts” but that this market was “more or less emptied out”.

He said the scheme was therefore looking into venture capital, adding that, “in any case, if possible, we would also like to include secondaries”.

For the initial planning process, IBM Germany enlisted the support of its US-based parent company, which has  invested in private equity for last 25 years.

Ohlrogge also noted that the pension funds of IBM’s Dutch and UK subsidiaries invested in private equity in recent years and “have generally had good experiences”.

But he acknowledged that, for the IBM Germany scheme, co-investments with the parent company or other subsidiaries would be “impossible”, as UK and US asset managers found it “difficult to guarantee tax transparency in those vehicles”.

Additionally, IBM Germany used a consultant to come up with a long-list of possible managers, but Ohlrogge said he and his team wanted to do the final beauty contest themselves, “as we do in other alternative asset classes with face-to-face meetings”.

Overall, Ohlrogge said he liked real assets because “yields are lastingly higher than from securitised debt”.

However, the Pensionskasse is not invested in real estate because “too many others are looking into top locations, especially large insurers”.

As a next step, he wants to look for further bond surrogates in the alternatives space and diversify more of the portfolio out of Germany.

In the equity portfolio, Ohlrogge said he was “very content” with the overlay the Pensionskasse has had in place for more than four years now.

He said this overlay was necessary, as “you cannot have a sufficient real-asset allocation without a risk overlay” in an equity portfolio.

He confirmed that the overlay had cost the Pensionskasse 100 basis points of return in 2012 when markets were volatile, but he added that it gained the scheme the same amount a year later when markets were more stable.

“Overlays cost money and cut off performance at the top, but, if you know that and calculate that in, it can protect you from massive losses and outperform in stable markets,” Ohlrogge said.

For more on the changes in the new investment directive, particularly for real estate and infrastructure, click here

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