German pension funds for professionals (Versorgungswerke) are exploring opportunities in private debt and infrastructure, while also strengthening their directly held bond portfolios.
Ärzteversorgung Westfalen-Lippe (ÄVWL), the €15.5bn pension fund for doctors in the Westphalia-Lippe region, currently sees the best relative value in direct infrastructure debt, according to Lutz Horstick, head of the securities and loans department at ÄVWL.
The fund plans to keep its alternatives allocation broadly stable, mindful of market risks and the need for selectivity.
“Whether we will be able to keep the high level of alternatives depends on the availability of good managers and projects at reasonable prices,” Horstick told IPE.
Within alternatives, ÄVWL continues to see attractive opportunities in private equity, while showing less interest in direct infrastructure equity and direct lending, he added. At the same time, the fund is reinforcing its directly held bond portfolio.
“Given that spreads are near historic lows, we prefer senior financials or SSA [sovereign, supranational and agency] bonds with low structural complexity,” Horstick said.
Further expansion of its bond portfolio will depend on developments in spreads and yields, he added. Constraints include limited capital inflows and moderate maturities over the coming months.
The fund’s existing stake in Amprion, one of Germany’s four electricity transmission system operators, will also tie up liquidity for several years.
BVK, which manages €117bn on behalf of Bavaria’s professional pension funds, is currently in the midst of its triennial strategic asset allocation review, a spokesperson said. The process will clarify investment priorities across asset classes early next year.
Private debt momentum builds
According to Thorsten Wellein, chief investment officer at consultancy Faros, private debt has become a “hot topic” among Versorgungswerke as rising interest rates make the asset class more attractive.
“Many providers of private debt funds are flocking to the market, and the funds are getting bigger to meet investor demand. We are positive and see private debt with interest,” Wellein told IPE.
He noted that higher allocations to directly held bonds seen in recent asset/liability management studies do not signal a major rotation out of alternatives, particularly real estate.
Versorgungswerke are not under pressure to invest in real estate as they were during the low-interest-rate period, while they now have more room to invest in infrastructure under the new investment ordinance quotas, Welein said.
Infrastructure debt and renewables are in focus, while the value-add segment in real estate is drawing more attention, he added.
Faros also manages fund-of-funds strategies through its asset management arm, focusing mainly on alternatives such as German real estate Spezialfonds, infrastructure and private equity.
In private equity, the amount of dry powder held by firms is an issue, and it might not be the ideal time to invest, Wellein said, adding: “I don’t see the possibility to buy private equity assets at a discount.”
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