One-stop Shop and Rebel With A Cause
“Judge’s comment: The now integrated framework, portfolio construction and risk management now enjoy an above-average, high level of sophistication”
Deutsche Telekom Pensionswerke provides a variety of defined benefit and defined contribution company pensions schemes for the Germany-based employees of the Deutsche Telekom group. To fund the schemes it uses a variety of German funding vehicles: Pensionsfonds, contractual trust arrangement and Unterstützungskasse – a kind of provident fund. With the main strategic investment objectives differing among these, most of the assets are managed using an integrated asset-liability approach, but for some an asset-only approach is appropriate.
With respect to investment, the challenge Deutsche Telekom Pensionswerke has successfully met over the last few years is setting up an overarching process and structure for all its pension vehicles, given their different strategic goals, legal and regulatory constraints and organisational structures. And it is these changes, integrating the hitherto separately managed arrangements into one umbrella structure, that forms the basis of this winning entry.
The history of the project goes back to 2011, when the executive board of Deutsche Telekom decided to implement a corporate pension strategy that envisaged the integration of the different pension vehicles into one consistent, transparent and flexible structure, reducing administrative complexity, generating significant cost savings and ensuring a more efficient risk management framework. Previously, the different pension plans had individual governance structures, and a key objective of the integration was to replace these with a single, centralised governance framework. This is constructed around a group-wide, high-level pensions asset committee that is responsible for strategic decision making.
The principles of sustainable investing are a key example of the benefits of this new central structure. The integration enabled Deutsche Telekom Pensionswerke to pool all the different schemes’ assets into a common investment universe from which it could then govern its ESG/SRI approach with respect to any exclusions more effectively and with greater impact.
Deutsche Telekom Pensionswerke
Founded in 2011 (current form)
Defined benefit and defined contribution corporate pension fund
- active: 106,849
- retirees: 34,152
- deferred: 41,795
Performance as a percentage:
- one year: 23.86
- three years: 9.67
- Integrated governance covering several different corporate plans and structures
- Integrated model enables reduced costs and more efficient asset liability modelling
Bosch Pensionsfonds AG
RWE Pensionsfonds AG
Judges comment: “Ärzteversorgung Westfalen-Lippe has established a very well defined investment strategy, taking account of long-term trends from an anti-cyclical stance”
Ärzteversorgung Westfalen-Lippe (ÄVWL) is one of Germany’s few pension insurance-type arrangements to successfully maintain its actuarial interest rate of 4% despite difficult capital market conditions over the past few years, while significantly strengthening its balance sheet reserves.
Distinguished by the stability of its investments, innovative prowess and anti-cyclical approach, ÄVWL has recently placed particular focus on identifying and developing new investment areas involving long-term trends. This is the often the source of the doctors’ schemes ventures into anti-cyclical and contrarian investments. This has proven to be a successful approach for both ÄVWL and its partners in many of its ventures, and it has consequently enjoyed higher returns.
Recent examples of the trends ÄVWL has identified and reacted to include the following:
• Demographic changes: this has resulted in ÄVWL investing in a property fund focused on the acquisition, management and leasing of care homes.
• Energy security: ÄVWL has invested in mortgage-backed financing of underground oil and gas storage facilities.
• Growing national debt of industrial nations: the fund has developed an infrastructure programme with a focus on private public partnerships, logistics, and transport infrastructure.
• Energy recycling, generation and supply: direct investments in one of Germany’s largest electricity transfer network operators via an investment-grade corporate bond.
• Increasing correlation of listed securities: ÄVWL has expanded its timber investment programme into renewable raw materials with shorter crop rotations.
• Anticyclical investment behaviour: this concerns financing of ships and aircraft – two niche segments where traditional backers have pulled out.
• Structural weakness in the eurozone: with the euro dipping, ÄVWL now profits from the higher base rate in the US and from upward valuations of the dollar versus the euro. The scheme’s current unsecured dollar allocation is consequently some 15%.
Founded in 1960
Hybrid industry-wide German Versorgungswerk
- active: 40,446
- retirees: 14,296
Performance as a percentage:
- one year: 4.5
- three years: 4.6
- five years: 4.4
- ten years: 4.5
- Anti-cyclical investment approach helps maintain funding level and build reserves
- Recent niche include specialist shipping and aircraft financing
- Bayerische Versorgungskammer