Pension funds of DAX-listed companies are preparing to ramp up allocations to private markets as the move in Germany towards defined contribution (DC) pension models accelerates and semi-liquid structures gain traction.
Benjamin Carreras Painter, investments director at WTW, said semi-liquid vehicles – well-suited to DC plans and designed to provide capital access during the investment phase – are likely to expand “over the next five to 10 years”.
The growing adoption of social partner models offering DC plans will reinforce the trend, he added.
Last week, reforms to Germany’s occupational pensions were approved, aiming to boost take-up of DC schemes.
The shift is expected to push asset managers to develop Germany-specific solutions with lower fees, more frequent valuations and greater liquidity while still qualifying as illiquid investments, Painter said.
A significant share of DC capital remains tied up in classic 2% base fee/20% performance fee structures under the traditional GP/LP closed-end model.
Returns and structures in focus
German corporate pension funds continue to turn to private markets for returns that liquid markets cannot deliver, particularly as inflation remains elevated.
Jeffrey Dissmann, head of investment at Mercer Germany, said his firm expects DAX companies to keep expanding their private markets exposure over the long term, typically combining core infrastructure and senior private debt with smaller satellite allocations to higher-risk strategies.
Interest among smaller investors is also rising, particularly in diversified fund-of-funds structures, he noted.
DAX companies invest in alternatives through fund-of-funds, dedicated funds and Spezialfonds.
While fund-of-funds strategies offer broad diversification, evergreen vehicles provide direct private markets exposure, avoid the J-curve and in some cases offer quarterly liquidity – features that make them suitable for DC plans, according to Allianz.
Companies with large private market portfolios often use managed accounts separately, it added.
Cautious stance on private debt and equity
Private equity remains a long-term return driver. But lower-risk private debt and core infrastructure are gaining ground as pension investors seek stable cashflows, predictable returns and more liquidity, WTW’s Painter said.
“Recent volatility in the bond markets – even in German government bonds – has clearly demonstrated to investors that traditional fixed-income investments no longer offer the stability,” he added.
Higher rates, tougher exits, opaque performance, high fees and a lack of mark-to-market pricing have all fuelled scepticism toward private equity.
In private debt, corporates remain wary of anything beyond senior direct lending, Mercer’s Dissmann said. “Default rates have increased, posing a heightened risk, particularly for distressed debt and mezzanine debt,” he added.
Most DAX investors are prioritising lower-risk segments such as core and core+ infrastructure and senior direct lending.
Europe and the US remain preferred for defensive private markets exposure, while Asia is typically reserved for riskier value-add strategies.
Dissmann noted that defensive strategies in Asia often come with an unattractive risk-return profile due to political and geopolitical risks.
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