BVV, the €34bn pension fund for Germany’s financial sector, has significantly increased its allocation to fixed income, with 65.6% of total assets now earmarked for the asset class, according to updated investment policy principles effective 30 April.

The revised strategy marks a notable step up from the fund’s previous policy, which allocated 55% to bonds — 50% through direct holdings and 5% via mandates. Under the new approach, BVV plans to invest 60% of total assets directly in fixed income, with the remaining 5.6% managed through external mandates.

Bond investments have long formed the core of BVV’s portfolio, accounting for 49.5% of total assets at the end of 2023, the most recent figures available. The scheme’s direct fixed income exposure will focus on euro-denominated government bonds, covered bonds, and corporate securities, including promissory notes.

Christian Wolf, head of risk and quality management at BVV Pension Management, said the move to bolster fixed income reflects the asset class’s ability to dampen portfolio volatility.

The fund is aligning its strategy with the changed interest rate environment, he said, referring to the structural shift towards higher rates in recent years.

During the low interest rate era, BVV, like many German institutions, expanded allocations to private markets in pursuit of higher returns. At its peak, the fund had around 40% of its assets in alternative investments.

However, the pension fund now plans to reduce this share to approximately 30%, according to its investment policy.

Alternative debt will comprise 12% of the portfolio, including 5.2% in corporate and infrastructure debt and 1.6% in real estate debt. A further 16.8% will be allocated to alternative equity, such as private equity (6.4%) and infrastructure equity (4%).

Equities will also be scaled back, with the allocation falling from 7.2% to 5%. BVV intends to pivot towards strategies with low or variable market beta alongside traditional mandates.

Real estate and infrastructure, previously allocated 8% and 5.5%, respectively, were not specified in the revised policy, suggesting potential rebalancing within the broader alternatives segment.

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Luigi is IPE's Berlin-based DACH correspondent. His coverage includes regulation and the latest pensions and investments trends, and, being a native Italian, he also covers Italy’s pensions market. He has reported from Italy and Germany on international politics and business for European and US publications including USA Today, Bloomberg BNA and for the investigative magazine L’Espresso. He was previously Germany correspondent for Mergermarket covering M&A.View full Profile

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