GERMANY - WPV, an €850m pension fund for chartered accountants, will make inaugural investments in alternative asset classes from 2007, targeting a quota of up to 5%, according to managing director Hans-Wilhelm Korfmacher.

Speaking at the Pension Fund Investment World conference in Frankfurt, he said the investments would include hedge funds, private equity and commodities.

"Our target quota is 5% for the asset class and as part of this, 1.5%-2% will be allocated to private equity, he added. WPV is hiring a consultant to advise it on the investments.

According to Korfmacher, WPV is turning to the alternatives to diversify its portfolio and maintain decent returns.

"At WPV, we need to achieve a 3% annual return to meet our liabilities. One of the challenges in this is the fact that we face an environment of low interest rate," Korfmacher told the conference.

"Although we could raise our equity exposure, we feel that the market is high right now and that there are more risks than at the start of 2006. As a result, we have decided to invest in alternatives," he said.

Currently, WPV has 56% of its assets invested in fixed income products like government bonds and German Pfandbriefe (covered bonds). Another 3.5% is invested in global corporate bonds and 8% in global convertible bonds.

WPV's equity exposure is 16% while real estate accounts for 10%. All of the latter is indirect exposure, including German institutional funds called Spezialfonds and mutual funds. Finally, 7% is held in money-market instruments.

For 2005, WPV had a net return of above 4% under German accounting rules called HGB. But returns under HGB are understated, partly because of the schemes' obligation to build reserves for future liabilities and market fluctuations.

Regarding its real estate investments, Korfmacher said WPV was strongly considering investing in multi-manager funds to improve diversification. "German REITs (real estate investment trusts) are also being considered," he added.

WPV was set up in 1993 to provide a first-pillar pension to chartered accountants in the German state of North-Rhine Westphalia. Between 1998 and 2002, however, it also acquired chartered accounts from 14 German states, bringing the total number of insured to 9,600.
Korfmacher also said that in five to six years, WPV's assets would reach €2bn.