The low-interest rate environment has increased appetite for alternative investments, including highly illiquid assets, according to German investors.

For some, however, this exposure had increased by too much, delegates heard at the Faros Institutional Investor Forum during the EuroFinance Week in Frankfurt last week.

“In search for yield institutional investors have all become too illiquid,” said Amin Obeidi, executive board member at the NSN Pension Trust.

NSN – a €3bn pooled fund for various pension plans related to Nokia and Siemens, including more recently purchased Alcatel Lucent in Germany – has invested 20% in alternatives, including real estate and infrastructure.

“We do not want to increase our alternatives quota beyond that as our illiquidity share is already extremely high,” Obeidi added.

He said private equity had been “discussed again” by the fund’s management at the beginning of the year, but a new allocation was rejected on the grounds of fee levels and because there is “too much dry powder in the market”.

However, for the €12.7bn pension fund for doctors in Westphalia-Lippe, ÄVWL, illiquid and more complex investments have helped to achieve the promised 4% interest on members’ assets.

“For us the cash-flow is important to achieve more than the necessary return via complex topics – with our long investment horizon investments into real assets are a good idea,” said Christian Mosel, managing director at the ÄVWL.

Most recently the pension fund helped finance the Nordlicht onshore windpower project via Prime Capital.

“Deals like that take a lot of time and effort but we think they are right for us,” Mosel added.

He said infrastructure and similarly complex topics were “part of the ÄVWL’s DNA” and that over the past few years the fund had built considerable know-how in that field.

Similarly, Mosel noted that the fund had mainly invested in project developments within real estate, rather than existing buildings, to get higher returns.

Additionally, the ÄVWL was amending its own real estate portfolio to improve returns, he said.

Mosel and his board were less convinced about asset classes such as commodities and hedge funds, and had not considered them for inclusion in the investment portfolio.

Pascal Mangang, head of risk management at the €24.5bn VBL, the public pension fund for German federal and state civil servants, said time was an important factor.

“For long-term investors illiquidity is not as much of an issue,” he said. “We can wait if the investment is good enough – but you have to stick to your strategy.”

Nevertheless, Mangang said he was worried that, despite higher returns from illiquid strategies and absolute return approaches, the low interest-rate environment would lead to problems for pension funds like the VBL which have to fulfil return guarantees.

“The pension industry will get into trouble if the interest rates are not recovering soon,”  he said.