The German Versorgungswerk for doctors in Westfalen-Lippe, ÄVWL, in 2013 outperformed its minimum return target, aided by an infrastructure portfolio which offers loans to airlines for the acquisition of planes.
The €10.5bn fund, joint winner of the country award at the 2013 IPE Awards, reported a net return of 4.4% last year, above the 4% discount rate applied to its future pension payments.
Andreas Kretschmer, managing director at the ÄVWL, told the current issue of IPE: “Our main aim is not to achieve the highest return possible per year but to achieve stable returns over the long run.”
One important building block for its strategy is infrastructure which according to the ÄVWL was “generating stable cashflows above the discount rate and with it a constant basis of returns”, something that could not be said for “most simply structured fixed-income securities and corporate bonds” in the current environment.
One “focus” for the infrastructure portfolio was asset-backed loans for the construction of airplanes, the ÄVWL said in a newsletter to its members this week.
The fund had announced in its 2012 annual report that it would look into such loans for ships and planes – the 2013 report has yet to be published.
Such investments fit into the ÄVWL’s “three-pillar strategy”, which it continues to emply according to Kretschmer – with the strategy focused on bonds, real estate and mortgage-backed or similarly asset-backed loans.
The fund is managing all the bonds in-house, some of them directly and some in a self-managed Spezialfonds.
As for real estate, which includes project developments, the ÄVWL said it was investing in this asset class both directly as well as via fund-structures.
Kretschmer said the ÄVWL was able to take on the real estate development risk because it had been building up a sufficient risk buffer and had the necessary understanding in-house.
In total, the risk buffers put aside make up roughly 16% of overall assets under management at the Versorgungswerk.
This buffer, as well as the long-term nature of the investment strategy, allow the ÄVWL to predict “despite very unfavourable conditions for re-investment” with what it regards as a “large degree of certainty” that the discount rate of 4% would remain unchanged and that it will be achieved annually until at least 2018.
For details on the funds asset allocation and return expectations see Pensions In Germany in the current issue of IPE.