German pension funds have for the first time pulled funds out of Spezialfonds, according to the latest quarterly report published by consultancy Kommalpha. Spezialfonds recorded an outlfow worth €1.9bn from pension institutions in the first half of the year, an historic first, it added.
For the first time in the last 10 years Spezialfonds have also recorded negative net inflows of funds from pension funds for three months in a row. Negative inflows stood at €2.8bn in the second quarter only, according to Kommalpha.
“In my opinion, pension funds are currently shifting their investments towards direct investments and structures outside Spezialfonds. In some cases there are also investments or liquidity needs from ongoing business operations that have a dampening effect on the net cash flows in Spezialfoinds,” Kommalpha’s managing director Clemens Schuerhoff told IPE.
Pension schemes are the main investors in Spezialfonds with €546.1bn, and with 818 Spezialfonds managed on their behalf, therefore their weight has a big impact on growth in terms of cash flows and assets.
Over the last 13 years pension schemes have injected €2.6bn per month into Spezialfonds. This leads to an average withdrawal of €2.4bn per month in the period under review, the report added.
“Pension funds have definitely not lost trust [in Spezilaifonds]. I think this is a temporary phase [of outflows] and the Spezialfonds business of pension institutions will recover in the next few months,” Schuerhoff added.
Pension funds, but also public and church supplementary pension institutions, and insurers, were all responsible for a large negative impact on German Spezialfonds in the first half of this year.
Inflows into Spezialfonds in the second quarter of this year were weak overall, with institutional investors allocating a total of almost €4bn, and negative net cash inflows in June amounting to €1.9bn, according to the report.
Kommalpha described this as an “extremely remarkable development”, as only four months in the last 10 years the net inflow of funds into Spezioalfonds was negative.
The fresh allocations to cash, however, was at a fairly high level in second quarter of this year at €63.2bn, it added.
Kommaplha explained the gap between net inflows of funds and fresh cash injected, with only a small share ending up in mandates, however, with a dynamic of reallocations within Spezilafonds.
“The record level of last year will not be reached in 2023, but the net cash flows in Spezialfonds will not collapse – it will be steadily positive at a slightly lower level, possibly with brief dips such as in June 2023,” the managing director said.
Institutional investors seat on a pile of liquidity, looking for investments, and also Spezialfonds will benefit from this in the long term, he said.
Investing in bonds has, meanwhile, become more attractive with rising interest rates. This is true also for Spezialfonds’ allocations and direct investments.
“Directly held bond positions are becoming more attractive again for some institutional investors. We also note that uncertainty continues to increase, not least due to the speed of interest rate rises. In these times diversification is taking on an increasingly prominent role in portfolio allocation,” said Alexander Tigges, head of senior relationship management at BNP Paribas, commenting on Kommalpha’s report.
DekaBank also observed growth in direct bond investments, said Jörg Debé, head relationship management, adding: “We assume that the inflows into Spezialfonds will develop moderately in the short to medium term, due to the fact that the cycle of interest rate increases by central banks does not seem to be quite complete yet.”
For Stefan Adam, senior expert sales custodian at DZ Bank, pure buy-and-hold strategies in direct investments, and a focus on German issuers, no longer pay off.
“The mix, diversification according to issuers, ratings, countries and maturities combined with the ongoing review of the holdings are crucial [for investors],” he said.