Germany’s DAX companies have continued to expand their alternative investments when allocating pension assets, keeping a close eye on investment diversification, Hanne Borst, head of retirement Germany at WTW, told IPE, commenting on the results of the firm’s annual study – DAX Pensionswerke 2023 – published today.

Alternative investments made up 32% of total pension assets of DAX companies last year, a stable year-on-year but up from 28% in 2021 and 26% in 2019, while 43% of assets is invested in bonds, 19% in equities, and 6% in real estate, according to the study.

Total pension assets increased in 2023 by 4.9% to €257bn, on the back of a 6.5% return worth €16bn, WTW said. Mercer’s recent DAX figures have also predicted this growth.

Capital markets were “volatile but robust in 2023”, Borst added, with equity investments recording significant gains, in contrast to real estate and other illiquid asset classes in particular which were unable to match the gains achieved in recent years, she said.

Obligations are rising slightly faster than pension assets, by 5.8% to €326bn, as the discount rate fell, particularly in November and December last year, it added.

Volkswagen recorded the highest amount of pension obligations at €45.8bn, followed by Siemens with €26.6bn, and BASF with €23.2bn, figures in the study show.

The current geopolitical and economic situation “remains challenging” for DAX pension investors, said Johannes Heiniz, WTW’s head of general consulting.

“In January and February this year, market expectations of rapid and extensive key interest rate cuts by the major Western central banks were revised, and there was a moderate increase in the international discount rate by around 30bps,” he added.

Pension obligations also depend on inflation, which has declined in the first months of this year in the euro zone, but less sharply than hoped, he added.

The funding ratios of DAX pension funds remained stable, at a high level of 79% last year, compared with 80% in 2022, the study added.

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