Bayerischen Pensionsfonds, the pension scheme for civil servants in the German state of Bavaria, has started to purchase short-term bonds, which are repaid as close as possible to investment dates, as part of its liquidity management approach, it said in its financial statement for 2023.

The Pensionsfonds conducted liquidity management only in exceptional cases until September last year, in order to invest money in equal tranches on a monthly basis according to investment guidelines, it added.

Deposits and pension reserves on the Bundesbank accounts, part of its portfolio management, started to carry 0% interest, as of 1 October 2023, the scheme added in the statement.

In the first three quarters of 2023, interest rates on pension reserves and deposits were attractive, persuading the pension scheme to leave cash in the Bundesbank accounts, it explained.

The Pensionsfonds invests its assets in bonds, equities, and exchange traded funds (ETFs). According to the scheme’s investment guidelines, the quota for equity investment is 40% of its total assets.

Last year, equity investments exceeded the 40% threshold, forcing Bayerischen Pensionsfonds to refrain from allocating assets to the asset class.

Nevertheless, the market value its ETF holdings went up to 44.3% at the end of 2023, from 42.9% in 2022, according to the statement.

In fixed income, the market value of the euro-denominated bonds also increased due to both the decline in yields on the European bond markets and investment in euro bonds, and in US Treasuries. Its fixed income allocation fell from 51.9% in 2022 to 50.8% in 2023.

The fund’s investment guidelines allow for an upper limit of 5% for investments in US Treasuries, and 5% for bonds with a single-A rating. US Treasuries made up 4.9% of assets last year, bonds with a single-A rating were 3.4% of assets, and bonds with AAA/AA rating stood at 47.3%, the statement added.

The scheme returned 11.2% last year, with assets under management reaching €4bn.

Since its inception 25 years ago, Bavaria has paid into the Pensionsfonds around €2.6bn, which has been allocated from the state budget, including €137m in 2023.

The state of Bavaria expects to pay at least €110m per year in the coming years into the fund, it said.

The latest digital edition of IPE’s magazine is now available