The German provider of occupational pensions for employees of the Catholic Church and charitable sectors, Kirchliche Zusatzversorgungskasse des Verbandes der Diözesen Deutschlands (KZVK), has reviewed its strategic asset allocation tilting it towards higher interest-bearing private debt asset classes, while reducing its equity allocation, it said in its 2022 financial statement.

KZVK, with €32bn in assets under management, plans to take the opportunities offered by higher interest rates to make new investments in fixed income securities with high credit ratings, significantly higher in terms of returns than in previous years, it added.

The scheme has beefed up its investments in fund of funds in private markets, according to the statement. It uses fund of funds vehicles for unlisted investments in asset classes including private equity, infrastructure, real estate and private debt.

Last year, it made new investments in private debt to deepen its regional diversification in Europe with specialised funds for secured financing strategies, it said, adding that it invested in software companies through two private equity funds.

In infrastructure, the pension fund has invested in funds with a regional focus, particularly in the UK and Asia, at the same time expanding existing partnerships globally, it disclosed.

It has continued to allocate its assets to real estate through fund investments, particularly in the logistics sector, selectively making new investments in the residential, office and hotel sectors, it said.

KZVK subscribed for the first time to a fund specialising in office properties in Asia, and keeps looking at the US and Europe, directly holding real estate portfolio properties.

Beyond funds of funds, the scheme leveraged the rise in interest rates by rolling new fixed interest rate loans for German and international companies in the pharmaceuticals, biotechnology, banks and real estate industries.

While the volume of investments in funds of funds in unlisted assets increased in the pension fund’s portfolio, holdings of funds of funds for investments in listed securities dropped.

KZVK also cut its allocation to government and corporate bonds issued in developed countries, increasing the volume of currency hedging transactions as the dollar appreciated temporarily. It expects high volatility for equity markets and possibly subsequent falls in the valuation of unlisted securities.

Therefore, the scheme is reviewing its overlay mandates for equities and currencies, broadly diversifying investments across asset classes in this part of its portfolio.

Despite market downturn, total assets last year increased by €1.52bn, or 4.94% year-on-year to €32.41bn. The book value of investments was €25.15bn as of the end of December last year, with a market value of €24.52bn.

Catering for 1.5 million members, KZVK invests the largest share of its assets, approximately €15bn, in equities, investment funds and other non-fixed income securities, €4.42bn in bearer bonds and other fixed income securities, €2.71bn in registered bonds, €2.44bn in promissory notes and loans, and €118.41m in private equity.

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