Kirchliche Zusatzversorgungskasse des Verbandes der Diözesen Deutschlands (KZVK), the €36bn German occupational pension provider for employees of the Catholic Church and charitable sectors, has fully wound down its use of equity risk hedging via derivatives as part of a broader strategic realignment.
The move follows a reduction in the scheme’s equity allocation initiated in 2023 and finalised last year, driven by rising interest rates, the fund disclosed in its 2024 financial statement, published yesterday.
While KZVK plans to reconfigure its equity risk management framework this year, its allocation to listed equities will remain broadly unchanged – or increase only marginally – as it looks to reduce overall risk exposure.
Equity market valuations are high worldwide, which should lead to somewhat lower returns for this asset class in the medium term, KZVK stated, adding that future gains appear already priced in.
Based on these assumptions, the fund said it had disproportionately scaled back European equity mandates, reallocating capital primarily to investment-grade corporate bonds and sovereign debt from developed markets.
Within fixed income, KZVK pursued higher-yielding segments, including selective allocations to high-yield bonds.
It also increased investments in bearer bonds and loans held to maturity to match long-term liabilities, with a focus on issuers such as state development banks and firms in the banking, telecoms and transport sectors.
The portfolio overhaul also extended to private markets. KZVK expanded its global private equity exposure, continuing relationships with existing managers via successor funds and forming new partnerships – including one targeting European financial companies – and selecting specialists focused on specific regions or sectors.
Its private debt allocation was strengthened through new commitments to target funds in both Europe and the US, building on established partnerships.
Infrastructure investments increased across digital and energy assets in North America via diversified strategies and specialist managers, while European allocations focused on transport infrastructure.
In real estate, KZVK boosted allocations in the residential and logistics sectors in the US and Asia, primarily through pan-regional funds. A portion of the portfolio was also invested in similar property types across Europe.
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