Bayerische Versorgungskammer (BVK), Germany’s largest pension scheme with €111.9bn in assets under management, has revised its investment strategy, redefining its macro allocations, considered as the ratio between direct and fund investments, it said in its 2023 financial statement.

The scheme, which manages assets for 12 pension institutions, has reworked its strategic asset allocation (SAA) back in 2022, during a period of increasing interest rates, for the duration of 2023-2025, believing that the strong expansion of fund investments conducted over the last few years has now reached “an end point”, it added in the statement.

This means that it can now expand its investments into fixed income again, while stabilising Masterfonds through a new quota for mixed investments, as it plans to slightly cut allocations to real estate, the fund disclosed.

Over the next few years, BVK plans to reduce its overweighted asset classes to a small extent, by no longer reinvesting returns in the same asset class, while conducting new investments in underweighted asset classes, supported by cash flows, the scheme explained in its statement.

BVK will invest in timber looking at “evergreen structures”, which will give investors the opportunity to keep high-quality forests in their portfolios, generating a stable long-term cash flow, it added.

The scheme has already started to implement the new strategy, making step towards the targets set for the various asset classes’ allocations.

According to its SAA, BVK has a 12.4% allocation target to equities (against 14.1% allocated in 2022), 17.3% to bond funds (against 14.6% allocated in 2022), 6.1% to alternatives (compared with 8% for the previous year), 17% to private equity (compared with 18.9% for the previous year), 21.8% to real estate Spezialfonds (against 24.6% in 2022), 4.5% in direct investments in real estate (compared with 3.6% for the previous year), and 20.9% direct bond investments (against 16.2% in 2022).

The allocation to fund holdings had grown as planned to almost 80% of total investments.

Lower returns on bonds with good credit ratings resulted in a further expansion of diversified fund investments in more volatile asset classes – which its allocation is limited by regulation – and in real estate funds, it added.

An ESG rating has been established for its fixed income direct investments, evaluated on a monthly basis, BVK noted, adding that the ESG rating of issuers has steadily improved in recent years.

As a member of the Net Zero Asset Owner Alliance (NZAOA), BVK has set itself, among other things, the interim goal of reducing its portfolio emissions by 22% by 2025 for listed equity, corporate bonds and real estate assets. It has already switched to Paris-aligned benchmarks for parts of its equity investments.

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