The Kirchliche Zusatzversorgungskasse des Verbandes der Diözesen Deutschlands (KZVK), a German provider of occupational pensions for employees in the Catholic Church and charitable sectors, will continue to invest in private debt over the next years to reach an allocation of 2.5% by 2025, in line with its investment strategy, head of capital investment Stefan Heidel told IPE.
KZVK pursues a conservative approach, with investments initially only in senior loans of small and medium-sized companies, if possible without connections to the private equity sector, he added. However, it will invest by underwriting to funds, some tailor-made for KZVK, in Europe and the US.
According to its latest financial statement, KZVK made its first private debt investment last year. It set up a fund of funds (FoF) for investments in unlisted assets.
The new FoF vehicle targets investments in infrastructure, real estate and private debt, which are primarily made in funds, but for infrastructure or real estate direct investments are also possible, the statement added.
KZVK plans to further expand allocations to private equity, infrastructure and real estate to diversify its portfolio. It pursues an “ambitious, long-term” plan based on investments for specific asset classes every year, Heidel said.
For infrastructure, including renewable energy, KZVK aims to reach an allocation of approximately 8.5% of invested assets through funds and co-direct investments by 2026.
KZVK has already conducted direct investments in hydropower plants and solar parks. Last year, KZVK made investments directly in infrastructure and real estate in particular in the field of renewable energy infrastructure in Europe and residential real estate in Germany and Austria, according to the financial statement.
Investments also include three infrastructure funds with a book value of €106m. KZVK holds a stake of more than 10% in two of these funds, the statement added.
KZVK has also increased its holdings in world equities and bonds from issuers in emerging markets through fund investments in 2020.
The portfolio of classic liquid investments in public markets, excluding directly held securities, is managed by a master capital management company (Master KVG), Heidel explained.
“The goal is to diversify investments, carefully balancing risks and returns, in compliance with ESG requirements”
Stefan Heidel, head of capital investment, KZVK
“KZVK looks at capital markets with a long-term view. The goal is to diversify investments, carefully balancing risks and returns, in compliance with ESG requirements,” he said.
The scheme believes that it is currently “well positioned” in equities to expand the portfolio through “more opportunistic and selective” investments, pursuing an approach that is global, diversified across regions and in terms of investment strategies, Heidel added.
KZVK has invested in several emerging markets funds for many years; it considers that an “investment opportunity within the framework of a long-term investment horizon”, he said.
It plans to further increase its allocation to emerging markets and, if necessary, to diversify it through additional funds and managers.
KZVK has total asset under management worth €29.4bn, up from €29.2bn in 2019. The capital is invested via the Master KVG mostly in equities and securities (€12.3bn), fixed income securities (€4.4bn), debt and loans (€2.8bn), property (€354.8m), and other investments (€160.9m), according to the statement.
The overall performance of the scheme was 3.25% last year, up 13.1% year-on-year, thanks to all asset classes, but especially the dividends from the funds of the Master KVG and investments in private markets, Heidel said.
Interests earned on direct investments in securities and the transfer of real estate from a directly-held portfolio into a Spezialfonds also contributed to positive returns last year, he noted.
Looking ahead, low interest rates will remain a challenge, while for private market investments current travel restrictions pose a challenge to conduct due diligence for. KZVK closely monitors rising inflation rates, especially in Europe and the US.