GERMANY - The €1.4bn German Versorgungswerk for chartered accountants WPV plans to continue to decrease its exposure bank-related fixed income investments, but will have to seek external advice to do so.
"We have already reduced the quote of banking debt but we want to further decrease our exposure," said WPV managing director Hans-Wilhelm Korfmacher.
But he added there was an insufficient amount of credit research available for German pension funds, meaning smaller funds would need to turn to outside advice.
This was a potential business opportunity for asset managers, Korfmacher said, since smaller funds are not in a position to conduct the necessary research in-house.
WPV, which covers 15 German provinces, is seeking to outsource some of its research in this area, since this is one of the few things the Versogungswerk does not want to do on its own at the moment.
WPV currently has a fixed income allocation of 70% and Korfmacher is confident it will be able to reach its target returns despite the low interest rate environment.
"With moderate inflation, which is the most likely scenario, it should not be a problem to reach the discount rate," he said.
"Reaching an inflation adjusted return will be a challenge, but the diversification of assets - for example, via real estate investments - will provide a certain protection," he explained.
Furthermore, Korfmacher is not overly concerned about the potential for interest rates to go up in the future, given that WPV will have strong net capital inflows.
"Most bond portfolios are buy and hold investments, which lose value when interest rates go up, but fast growing funds like ours can profit from increased rates because of the new money flowing in," he said.
On the other hand, a "Japan-scenario" with a long-term deflation would be a "big problem", not only for the WPV but for all institutional investors who have to reach a discount rate, Korfmacher said.
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