German mid-caps could fully fund pensions by 2011

GERMANY - Firms traded on Germany's mid-cap equity index (MDax) could fully fund their pension schemes by 2011, or just a year later than blue chips traded on the Dax-30, according to Rauser Towers Perrin (RTP).

Pension liabilities for the 50 MDax firms declined by €5bn last year to total €35bn, a new RTP study shows. At the same time, the firms' assets to meet these liabilities totalled €17bn in 2006, - an increase of 21% over 2005.

RTP said that as with larger companies, mid-caps' ability to fully fund their schemes depended on "current positive trends continuing".

These trends reflect that due in part to market-driven increases in the so-called Rechnungszins, Dax and MDax firms are seeing their pension liabilities sink dramatically. The Rechnungszins is used by pension schemes in calculating how to meet liabilities with an average duration of 10 years.

Earlier this month, German consultant Heissmann reported that following an increase in the Rechnungszins to 5%, pension liabilities for the 30 Dax members had declined by €10bn since January.

According to RTP, the improved pension funding status of MDax firms is not only due to increases in the Rechnungszins but also the fact that several of them have created external funds known as contractual trust arrangements (CTAs).

CTAs emerged at three MDax firms last year, including electronics firm Wincor Nixdorf, floors specialist Pfleiderer and Heidelberger Druckmaschinen, a maker of printing machines.

Finally, the RTP study showed that the asset allocation of the pension schemes for MDax companies was roughly similar to those for Dax constituents last year.

MDax pension schemes invested 43% of assets in fixed income, 39% in equities, 8% in real estate and 11% in other asset classes, whether liquidity or alternatives. Dax pension schemes, meanwhile, had 47% in fixed income, 42% in equities and 5% in real estate. Allocations to other asset classes were 6%.

*In other news, German private bank Sal. Oppenheim and US insurance giant Prudential Financial have ended an asset management venture, with the bank buying out its US partner. The venture managed €2.6bn in assets, €1bn of which was institutional.

Detlef Bierbaum, managing partner of Sal. Oppenheim in charge of asset management, said the move was related to the bank's wish to further expand its international fund business from its new base in Luxembourg.

Prudential will, however, continue to act as an advisor for some funds distributed by Sal. Oppenheim.

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