BVV,  the pension provider for the German financial sector, has invested €1.5bn in high rating investment grade bonds, with longer maturities and yields of around 4% in 2022, as central banks were shifting away from low interest rates, it said in its latest financial statement.

Even if the share of directly held interest-bearing investments in its portfolio has fallen by around 2 percentage points to 40% at market value during the year, investments increased maturities by around 0.4 years, reducing reinvestment risks, it added.

BVV plans to increase allocations to directly held interest-bearing instruments, with a renewed focus this year on the asset class offering “predictable income”, cutting instead investments in private markets, it said. It expects a lower volatility on equity and bond markets.

Last year, returns on directly held interest-bearing instruments rose by €6.7m to €642.9m, from €636.2m in 2021, according to the statement.

The fund will pursue an active risk management approach, especially in volatile asset classes, this year in order to cope with high level of uncertainty and geopolitical risks, it added.

BVV is also aiming to set up a management company in 2023 to offer members and sponsoring companies a wide range of products and services, requested already today, but hard to provided by the current pension fund’s structure.

The scheme predicts an increase in the amount of contributions in the medium term, and additional income through the administration of company pension benefits, it said.

The amount of contributions fell year-on-year by €19m in 2022 to €711.5m. Assets under management stood at €33bn, the financial report showed.

BVV expects companies in the banking and financial services sector to continue to outsource pension obligations to the scheme’s Pensionsfonds, with inflation leading to rising obligations on companies’ balance sheets, it said.

Falling total returns in 2022

The pension fund’s total returns fell year-on-year in 2022 to €1.17bn, from €1.95bn in 2021, with declining gains from the disposal of investments amounting to €55.4m (€160m in 2021), and average return on investments last year of 3.4% (5.6% in 2021).

Equities returned -12%, it said, adding that the re-allocation of assets towards a more broadly diversified portfolio, with a higher share of volatile and illiquid investments, had led to a negative performance last year.

The share of illiquid investments including real estate, infrastructure, private equity and private debt, stood at 41% of total assets. Private debt returned close to 2% last year, and private markets investments overall around 13%.

The pension fund invested 46.6% of its assets in undertakings for collective investments, 30.9% in fixed income securities, 13% in registered bonds, 9.4% in promissory notes, and 0.1% in real estate, as of 2022, according to the report. It holds €189.5m in cash.

The regulatory solvency requirements of €1.33bn are covered by the scheme’s own funds of €2.21bn, the report added.

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