Germany’s nuclear waste management fund KENFO is contemplating whether to adjust its private markets portfolio, deciding to continue to build up investments with the right strategies considering a market environment that has been changing dynamically.
“We continue to invest, but we don’t blindly follow our original path. We will very explicitly pay attention to what investment strategy we implement in this market environment and [call on] asset managers to work together” to avoid making mistakes in portfolio construction in the next few years, said Verena Kempe, KENFO’s head of investment management, at the Alternative Investors Conference organised by the Bundesverband Alternative Investments in Frankfurt this week.
KENFO will not set a timing for investments, but that does not mean that it will continue to invest as planned, while holding on to an investment plan over a period of five to 10 years, as “we are cycle-neutral”, she added.
“It is not easy […] in this market environment is difficult to decide how we keep building up capital investments,” Kempe said referring to the current geopolitical situation, inflation and central banks´ policies.
KENFO has its own idea on how to further develop its investment portfolio in the next five to 10 years but has to adjust it to changing situations. It has started to allocate to alternatives in 2019. It positions itself on thematic investments such as sustainability and technology, looking at the same time at niche strategies.
The target allocation for equities and REITs is 35%, and 30% for private markets with a very strong presence in private equity, 25% for corporate bonds and emerging market bonds, and 10% for government bonds.
In terms of sustainability “private markets have some catching up to do for transparency and reporting”, she said, adding: “I look every day at the carbon footprint in our liquid portfolio and I would like to look at the carbon footprint in the illiquid portfolio” but that can still take time.
KENFO expects stable returns ofrom certain asset classes in its illiquid portfolio – infrastructure, private debt and real estate. “We see further growth in this market segment and we need access to this to have alternative in investments,” she added.
In the last five years KENFO has worked to build an investment platform to have access to both liquid and illiquid asset classes to invest globally.
It designs strategic, tactic and sustainable strategies internally and it has a risk management process that follows every step of its investment activity.
The asset management is outsourced to a Kapitalverwaltungsgesellschaft (KVG), and on the investment side it works with asset and fund managers for fund and co-investments.
The first sovereign fund in Germany, set up in 2017, KENFO has assets under management of €25.5bn with a target annual return of 3.7%.