Nordrheinische Ärzteversorgung (NAEV), the German pension fund for doctors in the state of North Rhine-Westphalia, will continue the switch from bond investments carrying low yields to illiquid asset classes, as central bank policies and the war in Ukraine continue to impact investment markets, it said in a note on its financial returns for 2021.
Targeted illiquid investments include real estate, infrastructure, private equity and private debt, it said.
The interest rate environment, rising inflation and the effects of the war in Ukraine will “challenge us in 2022”, the pension fund said, adding that this situation is a reason to expect a “high level of dynamism” for equity markets, especially since it is uncertain to what extent central banks will adjust their monetary policy.
Last year NAEV saw returns increasing year-on-year by 13.9% to €559m from €491m in 2020, with net returns rising by 0.36 basis points and assets under management from €14.27bn in 2020 to €14.83bn in 2021.
Among the invested asset classes, in 2021 returns were “very high” in private equity with a growth of over 42.8 percentage points year-on-year, given also the technical reason for a valuation of this asset class that is higher due to significantly low interest rates, similar to real estate, the pension fund said.
The scheme saw the value of directly held real estate investments jumping by 37.3% last year, compared with 6.7% in 2020, based on an update of the valuation of all its existing properties, an exercise taking place every two years.
NAEV allocates 21.7% of its assets to real estate, 5.6% to infrastructure, 6.8% to private equity, 13.2% to equities, 2% to absolute return/hedge funds, 5.3% to private debt, 8.3% to fixed income, 25.7% to promissory notes/bonds, 11.1% to mortgages, and 0.3% to liquidity/currency hedging, it said.
It continued to diversify investments last year by reducing the share of fixed income investments from 10.8% to 8.3% while increasing allocations to real estate by 2.2 percentage points, from 19.5 to 21.7%, the strongest increase among the invested asset classes, it noted.
NAEV has also continued to progress with its sustainability strategy by integrating ESG aspects in its investment portfolio at individual investment and investment funds level, but the strategy is designed to ultimately fulfill the mission of creating financial security for members that are retiring, it said.
The number of members for the pension fund increased by 3,285 last year, compared with 3,166 members added in the previous year, for a total of 60,133, including 1,982 doctors joining directly after finishing university.
Pension benefits increased by 5% year-on-year in 2021 to €677m, and contributions rose by 4.9% €754m.