Volkswagen Pension Trust weighs up alternatives
GERMANY - Volkswagen Pension Trust (VPT), a €2.4bn external fund, is considering investing in alternatives over the next three years rather than increasing its exposure to equities, according to Kai Otto, one of VPT's managers.
Speaking at Uhlenbruch's portfolio management conference yesterday in Frankfurt, Otto said despite the continued upswing on equity markets, the fund was "very comfortable" with its equity exposure, which currently sits at around 40%.
Without elaborating on which products in particular VPT would consider, Otto said "between now and 2010, I think our strategy will be to look closely at alternatives".
But he also said VPT could include "benchmark-free concepts" like absolute return products such as hedge funds.
VPT's current equity exposure includes investments in Europe, the US and Japan while its fixed income exposure includes European corporate bonds, US aggregate bonds and European government debt.
VPT also relies both on a German master fund and a Depotbank. A master fund consolidates back-office service of an investor's funds to cut costs and boost transparency and the Depotbank handles clearing and settlement.
While the asset allocation for VPT, in particular, was not fully detailed, Volkswagen's latest business report indicates 42.9% of the car group's pension money is invested in shares, 48.3% is in fixed income, 3.4% is in real estate and 4.6% is in liquid assets.
Launched in 2001, VPT was one of the first contractual trust arrangements (CTAs) created by a big quoted German firm. Since then, CTAs have spread to two-thirds of the firms traded on the Dax, Germany's blue-chip equity index.
However, while CTAs have enabled firms to remove pension liabilities from their balance sheet, more than €13bn worth of these obligations still remain on Volkswagen's balance sheet.
VPT's €2.4bn in assets stem not only from corporate schemes at the car giant, but also from Volkswagen's so-called ‘overtime account'.
Pioneered by Volkswagen in 1998, the accounts enable employees to save the monetary equivalent of overtime hours, unused holiday and cash bonuses to finance retirement or any time off work.