US trade and tariff policies are prompting corporate pension funds in Germany and the wider DACH region to review strategic asset allocation assumptions to lower exposure to equities, the dollar and US Treasuries, according to pensions experts. Pension funds are eyeing private assets, Europe and emerging markets as alternatives.
This strategic realignment of the portfolios follows the market shock that hit the funding ratios of corporate schemes, which reached a low point in April, according to WTW. Since then, the situation has improved but volatility remains high.
The market reaction to Germany’s decision to boost infrastructure and green investment via a so-called special fund also put pressure on funding ratios, Nikolaus Schmidt-Narischkin, chief commercial officer for WTW Germany, told IPE.
“Both factors, tariff policy and the surge in public funding through the special fund led to a short-term decline in the funding ratio of pension promises in Germany, which had recently reached record highs,” he said.
Currency-hedged global equities declined by around 3% in the first quarter, according to Mercer, while Germany’s spending programme led to a general rise in interest rate expectations, with a direct impact on the actuarial interest rates for pension liabilities, said Jeffrey Dissmann, head of investments at Mercer Deutschland.
Pension investors in the region experienced slight losses on equities but at the same time saw some relief on the liability side.
Mercer expects a moderate impact from tariffs, in the range of 2-4%, on the funding ratios of corporate pension schemes in the DACH region, thanks to the diversification of the investments, and particularly the tendency to overweight European equities.
US policies have also reminded pension investors to review asset allocations regularly and to act strategically without resorting to short-term tactical actions. Diversification remains a key factor in difficult market situations to achieve positive performance in many portfolios, at least relative to the benchmark.
Equity allocations down
“Allocations to equities have recently declined slightly overall in favour of bonds and illiquid investment strategies,” said Schmidt-Narischkin.
The large exposure of many investors to global equities in the form of purely passive, market-weighted index products, has received little critical scrutiny in recent years.
“This is currently changing sustainably; alternatives are being considered,” said Schmidt-Narischkin.
Among the emerging trends are reducing allocations to riskier assets; critically reviewing the structure and positioning of equity portfolios; and investing more in fixed income.
The approach of corporate schemes is also changing when it comes to open currency positions.
“Notable here is the effort to quickly and significantly reduce open US dollar exposure. From the perspective of many investors, the US dollar, and with it US Treasuries, are in the process of losing their status as a “safe haven”, he added.
WTW is also observing reluctance from corporate pension schemes to endorse new commitments to further invest in private markets in the US.
“This is primarily because of the open question of how the framework conditions for infrastructure and renewables, for example, will develop,” Schmidt-Narischkin said.
Uncertainty around tariffs has led to a growing interest by many pension investors in the DACH region in alternative markets.
“In particular, the focus could shift to European markets, which are considered more stable, or to emerging markets, which offer significant growth potential. In addition, private market investments remain of great interest in order to further diversify asset allocation,” Dissmann said.
Manor Pensionskasse is bearish on US Treasuries
The investment committee of Manor Pensionskasse, the pension fund of the Swiss retailer, met at the end of April to assess and discuss US economic and trade policy in depth and ultimately on the asset allocation of the scheme.
The committee concluded that it is too premature and uncertain to assess potential long-term consequences for its strategic asset allocation. The pension fund plans to conduct its next review as part of its regular asset/liability management (ALM) study in 2026.
“Regarding the tactical allocation, the consensus was that we are bearish on US Treasuries and have therefore been tactically underweighting them in favour of Swiss bonds and gold since last week. This is all the more so given that we expect negative interest rates in Switzerland in the coming months,” chief executive officer Martin Roth said.
Rising US interest rates could also have a negative impact on other asset classes, particularly private markets, but it is practically impossible to assess the effects, let alone time them, the CEO added.
Pensionskasse Manor does not intend to reallocate its equity investments away from the US, opting instead for a passive approach based on market cap.
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