The investment made by the Versorgungsanstalt des Bundes und der Länder (VBL), the supplementary pension provider for public sector employees, and used to finance a real estate project in Berlin, has raised a red flag as reports emerged of possible misconducts.
The fund’s senior secured real estate lending investment was part of regular reports to BaFin, the German financial supervisory authority, because, among other reasons, press reports emerged on alleged misconducts surrounding companies linked to German Invest – recipient of a €130m “high-risk” loan by VBL.
The €130m investment was made through bonds issued by German Invest to then finance a residential development project with social impact in Berlin.
German Invest is a subsidiary of the real estate investment firm Aggregate which was one of the main shareholders of real estate company Adler Group, and now holding a 6% stake in the company after last year’s 20.5% divestment to rival Vonovia.
BaFin conducted an investigation into Adler, identifying accounting errors during its audit of consolidated financial statements, after Viceroy Research shortened Adler, accusing the firm of misconduct.
Last week, the public prosecutor’s office in Frankfurt and the Federal Criminal Police Office – Bundeskriminalamt – raided the offices and premises of Adler Real Estate, as subsidiary of the Adler Group, for alleged accounting shortcomings and market manipulation.
The authorities searched 21 properties of Adler in Berlin, Düsseldorf, Cologne and Erftstadt in Germany, and also in Austria, in the Netherlands, Portugal, Monaco, Luxembourg and Great Britain, tagesschau.de reported.
Last month The Left (Die Linke), Germany’s democratic socialist political party, filed an inquiry with the government, asking to disclose information on the loan, which had maturity of one year, carrying a coupon of 15%, having to be repaid in September last year, it said in the document sent to the government.
In its response, the government did not disclose details on the coupon, its repayment and the current status of the investment, classifying this information as confidential, as it could impact divestment opportunities for VBL.
BaFin, the finance ministry as other supervisory authorities for pension funds, and VBL’s sponsors, were informed about VBL’s investments.
For the pension fund traditional asset classes were and remain by far the most important components of its investment strategy. Expanding investments to alternative asset classes reflects an industry trend, and cannot be objected from a regulatory perspective.
Investment activities at VBL must meet the basic requirements of security, profitability, liquidity and quality, a spokesperson of the ministry of finance (BMF) told IPE.
“Unfortunately, important member questions remain unanswered by the government. The government does not even answer questions whose answers we already know. For example, we already know that the bond was not repaid as planned,” said Alison Schultz, financial economist at University of Mannheim, and part of the initiative SustainVBL.
Further information, such as that the money to finance the social housing project in Berlin “increases the concerns we have about the bond in question”, she added.
SustainVBL, a group including active and former members of the pension fund that has been demanding more transparency on VBL’s asset allocation and investments for years, said that it it’s always possible that a pension fund makes a questionable investment.
“Rather, the question for us is what other problematic investments VBL holds, and to what extent BaFin and BMF are committed to ensuring that members’ money is managed responsibly,” said Schultz.