The energy transition is opening up new investment opportunities for Ärzteversorgung Westfalen-Lippe (ÄVWL), the pension fund for doctors in Germany’s Westphalia-Lippe region, particularly to rebuild or expand critical energy infrastructure, chief executive officer Christian Mosel said.
“We have been active with financing and with holdings [in critical energy infrastructure] for many years. However, given the investment backlog and the need to accelerate the expansion of renewable energies, we currently have more investment opportunities than available cash,” he added in an interview with publication VersorgungsMagazin.
Prices for energy and raw materials are likely to remain permanently at a high level and the “good old days” are over for now, even if the preice peaks are overcome, and this impacts the energy transition phase, he said in the interview.
According to Mosel, the interest rate policies of central banks have brought a certain normalisation in the current level of returns. “However, what worries many market participants is the development of inflation, which still gives us significantly negative real returns” the CEO added.
Chief investment officer Markus Altenhoff added in the interview that the scheme conducted tactical adjustments in its investment portfolio last year, while central banks where hiking interest rates.
“However, we will remain true to our approach, which is based on broad diversification. This helped us again in the first half of this with equity investments,” he said.
The pension fund has been channelling “free liquidity and funds” increasingly into bond markets, which again promise returns above the discount rate, Altenhoff added.
The scheme, instead, considers only some real estate segments attractive for new investments due to the level of interest rates increasing financing costs, and negative impacts on property valuations, the CIO said.
Investments directly or indirectly linked to Russia or Ukraine have either been sanctioned by states or punished by the markets, but this had only a limited impact on ÄVWL’s portfolio, Altenhoff added in the interview.
ÄVWL will increase the entitlements and current pensions for basic provisions by 1.25% from 1 January 2024.
In addition, benefits and pensions provided through the Höherversicherung option, allowing members with the highest contribution for basic provision amounting to €20,576 in 2023 to increase the amount of pension entitlements, will also be increased by 1.25% from 1 January next year.
ÄVWL had €14.36bn in assets under management and 46,874 members last year, with a net return on investment of 3.3%, according to the scheme’s latest financial statement.