After 33 years at prominent German pension, scheme Nordrheinische Ärzteversorgung (NAEV), Hermann Aukamp, the scheme’s chief investment officer and director of real estate, retired in April. At NAEV, he was instrumental in drafting and executing a dynamic real estate strategy. He also acted as an adviser to pension funds and sits on the boards of companies.
He introduced an innovative and award-winning pyramid allocation structure that enabled NAEV to radically and dynamically alter its approach to real estate and set it on a path of greater diversification and global reach. It introduced a geographical spread of the real estate portfolio covering Europe, the US and Asia, while investments came in a variety of financial vehicles. The base of the pyramid was occupied by direct real estate investments that initially concerned five German cities: Berlin, Düsseldorf/Cologne, Frankfurt, Hamburg and Munich. This has since been extensively divested, with a special investment vehicle created in late 2007 for the remaining assets. The middle slice of the pyramid contained indirect real estate investments in restricted funds, known in German as Spezialfonds. These invested throughout the rest of Europe. The top of the pyramid also contained indirect real estate investments on a worldwide basis.
NAEV says that the pyramid structure introduced several benefits. First, it enabled the fund to gradually increase its level of diversification and to invest internationally using a disciplined investment process. It also helped it select the most appropriate mix investment vehicles and managers. Thirdly, NAEV was able to develop the international element of the portfolio in a transparent and controlled way. Finally, the pyramid provides a flexible and dynamic investment structure that reacts quickly to rapid changes in a globalised world with international capital flows.
Another key example of Aukamp’s commitment to ensuring NAEV remains at the forefront of real estate investment is the vision he first set out in 2011 to apply the principles of sustainability across the scheme’s entire directly-held residential real estate portfolio. Aukamp’s view is that tenants, not investors or regulators, will become the main drivers of sustainability in real estate.
His solution was to move proactively to ensure NAEV’s property holdings met the ever-changing sustainable demands of tenants. Aukamp’s first initiative in this area was to restrict NAEV to building new developments with joint venture partners that matched the scheme’s own strict sustainability criteria. This also enabled NAEV to remain ahead of regulatory developments in Germany that push through energy efficiency improvements in the housing sector.
One step ahead, Aukamp has bucked the trend with NAEV’s real estate portfolio by investing speculatively. In 2013, the fund begun construction on a new 3,000sqm speculative office development in Düsseldorf and is set to complete another 11,000sqm development in the same city that is pre-let to KPMG. Further afield, the scheme has its eyes set on Spain as both the Madrid and Barcelona markets show clear signs of a recovery.
As Aukamp leaves NAEV, its real estate portfolios remain transparent and clearly defined by geographical reach and sector, enabling the fund to build on his legacy as it invests in new niche markets, like multi-family and smaller secondary markets, to complement its core holdings in Germany and the likes of London and Paris.