Bayerische Versorgungskammer (BVK), Germany’s largest pension fund with €106.8bn of total assets, is looking to increase its allocation to investment grade bonds, it announced in its 2022 financial report.
Investment grade bonds have become “significantly more attractive” because of increasing interest rates last year, therefore, the fund can make up a higher allocation in its portfolio in the current financial year, the scheme added.
Assets under management fell by around €0.8bn year-on-year in 2022, with the pension fund facing an energy shock, war in Ukraine and Zeitenwende - or turning point in history – which brought high inflation, rising interest rates and a strong US dollar, a scenario that led to the scheme postponing planned investments over the course of the year, the statement continued.
The scheme set aside additional money for currency hedging for the assets held in US dollars in its Masterfonds, as a consequence of the sharp rise in the exchange rate of the US diollar in the second half of last year.
It sold assets that grew in value to generate additional liquidity, making most of its investments in global real estate and investment funds, it added.
BVK invests €16.19bn in interest-bearing securities, €83.08bn in equities and investment fund units, €51m in fixed-term deposits, and €7.53bn in direct real estate holdings.
In private debt, BVK invests in infrastructure and real estate financing through loans via funds to small and medium-sized companies in both the US and Europe, in renewal energy infrastructure, roads and social facilities.
As for real estate, the pension fund is financing direct lending facilities for projects in Germany, looking at the same time to find a fund solution for investments outside of the DACH region, it said.
BVK recorded income for contributions of approximately €5.5bn last year, and net income from investments of close to €3.4bn. Expenses for pensions, excluding regulatory expenses, increased by almost €0.2bn in the year under review to around €4.1bn.
The fund has been actively committed to sustainable investments by complying with ESG standards and joining the Net-Zero Asset Owner Alliance, actively using its voting rights, engaging with companies, it said.
The scheme has set specific goals for responsible investments, such as reducing its CO2 emissions by 50% by 2050. Last year, BVK published its interim targets for 2025, setting a 22% emission reduction for the main asset classes.