Allocations of pension funds in Spezialfonds are run for the largest part – estimated at 75-80% – through the form of Masterfonds mandates, according to Clemens Schuerhoff, managing director of consultancy Kommalpha.

Official figures on the allocation in Masterfonds vehicles by pension funds remain unpublished, Schuerhof told IPE, but Kommalpha has been able to produce such estimate based on several of its own analyses.

Masterfonds mandates rank in official research behind mixed securities funds and Spezial fund-of-funds but also, to a lesser extent, other asset class categories including real estate, equity and bond Spezialfonds.

Masterfonds are split in sub-funds for specific asset classes, investment universe and style via external asset managers, and are firmly established in the German Spezialfonds market.

Pension funds, and institutional investors in general, benefit from the allocation of assets in those vehicles with a high degree of specialisation, indlucing separation of administration and asset management services.

The mix of investments for pension funds investing in Spezialfonds is “far more diverse” compared with the investments of insurance companies, he said. Pension funds have built a portfolio of “alternative or illiquid investments very early on, around six to seven years ago,” Schuerhoff said.

He added that real estate played by far the largest role, but private equity, infrastructure and debt products were also under investors’ radars.

Institutional investors lack the resources to manage assets through direct investments with diversification and specialisation required for the many different types of asset classes, thus outsourcing assets and portfolio management under Speziafonds mandates makes sense, Schuerhoff explained.

“Of course, other investment vehicles and jurisdictions such as Luxembourg also benefit from this, but the Spezialfonds remain the preferred vehicle for indirect capital investments by German institutional investors,” he said.

A lot of liquidity

According to the latest Kommalpha’s quarterly analysis, pension funds’ investments in Spezialfonds have quintupled in the last decade, from €114bn in 2020 to €559bn now.

This is the result of a “long-term trend”, mainly driven by falling interest rates and increased pressure to achieve high returns, Schuerhoff said, adding that many investors are “switching from direct investments to fund investments, from which Spezialfonds benefit from to a considerable extent”.

Cash inflow in Spezialfonds reached €75.4bn in the second quarter of this year, well above €58.4bn in the first quarter. Net inflows totalled €21.4bn in Q2, down from €23.9bn in Q1, Kommalpha’s figures showed.

Spezialfonds of private non-profit organisations recorded net inflows of €7.5bn in Q2, followed by pension schemes’ Spezialfonds with €6.2bn and insurance companies with €3bn.

Overall, Schuerhoff said, there is a lot of liquidity within the institutional investment market in Germany.

Activities of private non-profit organisations generated a total of €30.5bn in liquidity in Spezialfonds in the second quarter, an extremely high amount according to Kommalpha’s research, up from nearly €8bn in Q1.

Cash inflows from insurance companies reached €17.3bn in the second quarter, ahead of pension funds with €14.8bn. Cash flowed into Spezialfonds, but only partially ended up in the investment vehicles, with a lot of liquidity that has been withdrawn, Schuerhoff said.

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