The finance ministry of North Rhine-Westphalia in Germany has called on the state’s professional pension funds (Versorgungswerke) to apply stricter risk management and governance standards, signalling closer supervisory scrutiny of the sector.
In a letter sent at the end of January, the ministry – which oversees the Versorgungswerke in the state – said it expects schemes to apply the new standards developed by Arbeitsgemeinschaft Berufsständischer Versorgungswerke (ABV), the association of professional pension funds in Germany, once they are registered as a trademark, the association told IPE in a statement.
The ministry is also requesting notification and “a detailed explanation” from any pension fund that decides against applying the standards, ABV added.
The association expects the move to set a precedent and accelerate the adoption of the guidelines across Germany’s 91 professional pension funds.
ABV introduced the standards last November following the case of Versorgungswerk der Zahnärztekammer Berlin (VZB), which is facing €1.1bn in losses linked to private market investments.
In December, the association applied to the German Patent and Trademark Office (DPMA) to register the standards as a trademark.
Under the framework, pension funds can apply for what ABV describes as a rating aimed at strengthening risk management processes.
To qualify, schemes must pursue an investment strategy in line with regulatory requirements and undergo comprehensive risk procedures, including stress testing, actuarial reporting and audited annual financial statements.
ABV has said the initiative is also intended to demonstrate the professionalism of the Versorgungswerke to their members and help restore trust in the system.
According to the association, pension funds and supervisory authorities have so far approved the introduction of the standards.
The VZB case, together with scrutiny of Bayerische Versorgungskammer (BVK) over its US real estate investments, has intensified debate around internal governance and external oversight of the first-pillar professional schemes. BVK manages around €117bn on behalf of Bavaria’s professional pension funds.
Germany’s fragmented supervisory structure – with more than 16 authorities responsible for overseeing the schemes – has been cited as a potential weakness, particularly where complex private market investments are concerned.
ABV, however, has rejected suggestions of systemic shortcomings in the sector’s risk controls.
“There is a multi-layered risk control system which, if carefully implemented at all levels, is effective and sufficient,” the association told IPE.
It added that it is inappropriate to conclude that there is a “systemic deficiency” in the professional management of invested assets or in the governance of the pension funds.
