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Impact Investing

IPE special report May 2018

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VBV to raise commodity holding

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  • VBV to raise commodity holding

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AUSTRIA - VBV, the largest Austrian Pensionskasse, wants to invest more in commodities and is looking at a foray into infrastructure.

"The excess liquidity is out of commodities which makes it more interesting than before," explained Günther Schiendl, CFO at VBV.

He believes commodity markets will stabilise at the same time as the economy begin to improve.

"We will strengthen our commitment in these investments," he stated as a result.

The €4.2bn VBV fund currently has over €400m in equities with an exposure band of 2% to 15% including hedging, 10% in alternatives including hedge funds and commodities, 5% in real estate and the rest in bonds at "mark-to-market and held-to-maturity", Schiendl pointed out.

He suggested there are also good opportunities to profit from infrastructure investments in the current financial climate, as governments trying to stimulate the economy.

"Though so far we have not seen any really interesting products yet, only old wine in new bottles," claimed Schiendl. "We are waiting for new product providers."

Little change has been made so far to the fund's strategic asset allocation in the course of the crisis, he explained.

"We do not have broad bond mandates anymore but more finely divided structures which are more easy to control," continued Schiendl.

The sub-sectors of asset classes and strategies of the portfolio are now broken down in index-tracking government bonds, slightly active debentures (Pfandbriefe), active investment grade corporate bonds divided in financial and non-financial categories, as well as high-yield and emerging markets debt.

The VBV introduced a market risk control for bonds in October, similar to the one in place for its equity portfolio.

"Now we can adjust the duration of bonds even if we do not have the funds This is important because even with sufficient liquidity, for example with government bonds which have dried out the market, it is not that easy to adjust the duration quickly," Schiendl explained.

The risk management strategy is handled via derivatives but the CFO is content with the new system as it gives the team an active access on a daily basis as well as to bonds.

The VBV has done some rebalancing within the equity element of its portfolio, mainly to help younger members get their equity exposure back up after it had been halved by market movements.

Schiendl expressed surprise at the lack of rebalancing so far seen within the pensions but he is convinced this will change once the money market interest rates lower back towards 1% and pension funds need to find alternative ways making returns

He sees believes there are buying opportunities in SME which came under pressure last year.

"They are less leveraged and will therefore develop better this year than large caps [companies]," explained Schiendl.

Looking specifically at geography, he follows the standard assumption and believes the US will be the first out of the economic crisis though Europe will also develop better than it did last year as local investors return to the market.

That said, he noted fear and scepticism still prevail and "the whole world is waiting to see how the first half of the year will develop, as banks publish their annual results."

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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