GERMANY - The Munich-based Bayerische Versorgungskammer (BVK), the largest pension fund in Germany, is set to increase its emerging market debt (EMD) exposure over the coming months.

Constantin Echter, head of fixed income structured products and spread investments at BVK, said: "Three EMD managers are currently responsible for our EMD portfolio, but we are in the process of adding one or two additional ones because we want to invest another €200m in the coming months."

The €51.5bn fund currently invests about €500m in the asset class.

At present, BVK conducts all of its EMD investments using external managers through fund shares - it said it did not use segregated accounts because of the better handling and implementation of local currency bonds through funds.

"For us," said Echter, "it is important that our EMD managers are not restricted when it comes to the selection of countries in their portfolio.

"Instead, they should have the flexibility to take advantage of opportunities in hard currency, local currency and corporate credit.

"The manager should also have an absolute return approach and be flexible enough with regard to duration and instruments to be able to ask himself whether it is better to buy the currency directly or invest in external debt or, more specifically, local debt.

"The EMD funds also have to have a UCITS III structure to enable us to invest in them."

BVK issued its first EMD mandate in January 2005.
For further details on this story, see On the Record in the July/August issue of IPE.