GERMANY - ZVK, a €2.9bn Pensionskasse (insurance-type scheme) for Germany's construction sector, was one of the few among its peers that raised its equity exposure in 2006 - another year of positive stock market returns.

According to its latest business report, ZVK's equity exposure rose from 3.8% in 2005 to 5.3% of assets in 2006 while the fund's total exposure to "non-fixed income products", including listed shares, jumped to 14.5% from 10.1% the previous year.

A spokesman for the scheme declined to say what the products beyond the shares were, but they can typically include direct investments in companies, property funds and alternatives.
That said, ZVK is one of the few Pensionskassen to have invested more in equities last year. Another was the €1.1bn multi-employer scheme PKDW, which raised its exposure to 9.6% of assets from 8.3%.

By contrast, the giant €18.6bn BVV scheme for Germany's financial sector kept its equity exposure constant at 11.8% of assets while Höchster Pensionskasse (HPK), a €313m multi-employer scheme, cut exposure to zero from 16%.

Despite the higher equity exposure for 2006, ZVK said its net return for the year was 4.7% - or under the 5% rough average for German Pensionskassen.

The spokesman said the scheme's return was partly held down by low bond yields as ZVK had 64.1% invested in fixed income at the end of 2006, down from 67.6% a year earlier.

Still, ZVK's return for 2006 was above its 2.25% minimum guarantee on paid-in savings. As a Pensionskasse, ZVK is tightly regulated by financial services watchdog BaFin.

"We stress our investments according to BaFin requirements on a quarterly basis. Because of our low-risk investment strategy, we consistently pass these tests," the scheme noted.

Commenting on its fixed income exposure, ZVK also said it only placed assets in investment grade paper, adding: "We don't have any structured products in our portfolio owing to their high investment risk".

Some Pensionskassen, such as BVV, are incorporating structured products into their fixed income portfolio in an effort to achieve higher returns.

The remainder of ZVK's asset allocation for 2006 was 15% in direct real estate investments and 6.2% in mortgage loans.

ZVK insures around 657,000 employees in Germany's construction sector and has 431,000 pensioners to whom it paid €375m in benefits last year.