Schroders is strengthening its position in Germany’s emerging pension buyout market as it prepares for further deals following an outsourced chief investment officer (OCIO) mandate announced this week.
The asset manager has been active in the German buyout space since 2020, having identified early on – partly from its UK experience – the potential scale and dynamism of the market.
“We recognised this topic as a growth opportunity in the German market early on, and focused on it through our own German-speaking pension specialists,” Moritz Jonas, specialist for occupational pensions at the asset manager, told IPE.
Schroders’s long-term goal is to expand its pension buyout business in Germany and establish itself as a leading player. “We currently believe we are well on track to achieve this goal,” Jonas added.
Consultancies such as WTW and asset managers including Lampe Asset Management – the institutional arm of Hauck Aufhäuser Lampe Bank – and BlackRock are also active in a market expected to reach around €60bn in the coming years.
Jonas said Schroders is currently working with several pension corporations (Rentnergesellschaften) – the vehicles used in Germany for pension buyout transactions – both on specific asset classes and through OCIO mandates.
OCIO mandate win
This week, Schroders announced an OCIO mandate win from pension buyout boutique Funding Solutions Deutschland (FSD) to manage the assets of a pension corporation.
Under the mandate, Schroders will implement a cash flow-driven investment (CDI) strategy, investing in a range of asset classes and building a derivatives portfolio for liability-driven investments (LDI) to fund the pension corporation’s obligations.
FSD and Schroders have a long-standing relationship, that has now been expanded through the outsourcing of a pension corporation’s investments.
FSD has completed 11 transactions so far, including the recent takeover of pension obligations from Wintershall Dea, owned by BASF and investment group LetterOne, bringing total liabilities under management to over €500m.
Alexander Prawitz, country head for Germany, Austria and CEE at Schroders, said the new OCIO mandate strengthens the firm’s position in a young but fast-growing German buyout market.
More affordable buyouts
Record-high pension funding levels and Germany’s prolonged economic weakness are making buyouts more affordable while prompting companies – particularly in the manufacturing sector, which holds the largest share of liabilities – to restructure their pension commitments.
Schroders is currently in talks with several companies at different stages of developing their pension buyout strategies.
“We have already observed more than five deals in the market this year. The pension corporation has established itself as a de-risking option, so the number and volume of transactions will continue to rise,” Jonas said.
The latest digital edition of IPE’s magazine is now available
