Germany’s nuclear waste management fund KENFO will invest over €5bn in alternatives to reach its 29% target as set by its strategic asset allocation, chief financial officer Thomas Bley said.
Currently, the fund has 6% of its total assets invested in alternatives, but plans to build up its illiquids portfolio over the years, similarly to the trajectory followed by AP4 in Sweden, the CFO added, speaking at the annual conference of the German occupational pension association Aba held today in Berlin.
In parallel, Sweden’s AP7 also announced last month it was planning to boost investments in alternative assets to reach around 20% of its total assets.
KENFO targets 35% of its total assets invested in equities and REITs, 29% in private equity, private debt, real estate and infrastructure, 25% in corporate and emerging market bonds, and 9% in government bonds, according to the CFO’s presentation at the event.
The fund has also the possibility to invest part of its assets in foreign currencies, not only dollar, for its equity portfolio, while hedging the fixed income portfolio in euros, Bley said.
KENFO’s long-term investment plan currently forecasts a 4.1% return per year, which is relatively ambitious, the CFO said, and could face potential cost increases.
“We have to be ready to take risks […] with the portfolio diversified in different asset classes globally,” he added.
The fund has dealt with challenges of the impact of the war in Ukraine and rising interest rates: it increased cash management with money market investments, reduced its allocation to equities, REITs and high-yield bonds, which led to improved returns by 1% compared with its reference portfolio, the CFO explained.
Last year, KENFO returned -12.2%, with assets under management standing at €24.1bn.
KENFO, which will manage the assets of the Generationenkapital, or generational capital, the equity fund built to reform the first pillar pension system in Germany, has a longstanding relationship with the AP funds in Sweden.
The CFO was invited by AP3 and AP4 in Sweden at the time of KENFO’s inception in 2017, to understand their structure and operations for long-term investment in particular, holding the former CEO Mats Andersson as a member of the advisory board.