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Impact Investing

IPE special report May 2018

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German public funds improve risk management

GERMANY -  German public pension funds have followed industry practice in adopting enhanced risk management provisions, even though they are not legally required to.

Hagen Hügelschäffer of the Association for Municipal and Ecclesiastical Pensions (AKA) said German supplementary public funds had adopted some of the provisions of MARisk introduced by the German supervisor BAFin in January this year (see earlier IPE-story: German ministry warned against Solvency II).

MARisk requires institutions to create a risk management department as well as to draw up and monitor risk strategies. They mirror some of the Solvency II requirements but do not apply to German second pillar public funds.

"Supplementary funds in the public sector are putting more emphasis on risk management with some institutions this means hiring more people for these tasks, and for smaller funds it means optimising their operations," said Hügelschäffer.

He added that it was not possible to apply one single approach to all funds because their sizes vary considerably, from the VBL, the mandatory supplementary scheme for public employees with 1.8m members to local schemes with only 20,000 members.

Depending on their size, public sector funds have adopted some parts of the legislation including independent monitoring, creation of a risk management team or drafting risk strategies.

And Hügelschäffer noted that this new risk focus will not necessarily mean a shift in asset allocation as German funds in general have always been very conservative in their investments.

"There has been a trend last year, which actually already had started in 2007, to step away from equities but other than that I do not see major changes in the asset allocation," he pointed out.

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