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IPE special report May 2018

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Wacker leads the way

Wacker Chemie has been running a pension fund for a long time – since 1928 in fact. But having such a history has not made the Munich-based Pensionskasse (PK) hidebound in any way–quite the reverse.
The asset management side, which is run by Klaus Kirschenhofer, has based its approach on asset liability studies for nearly a decade. “We worked these out together with Frank Russell. Indeed, we started do this as far back as 1991, which was quite early for Germany.” A further study was carried out in 1995 and another is due next year.
Apart from some assets run in-house, the PK has a raft of specialist managers, perhaps not too surprising given the consultants, with the strategic asset allocation undertaken by the fund’s trustee board. The DM2.1bn (E1.07bn) fund is invested 31% in domestic bonds, and 13% in domestic mortgages. On the real asset side, in market value terms, domestic equities account for 15% of the portfolio, European equities for 7%, US for 5%, Asia Pacific for 5%, with 3% in emerging markets, the fund’s most recent mandate; the property portfolio amounts to 19%.
Kirschenhofer says his role is to “optimise this strategy when implementing it and to add value through investment adviser selection”. The fund’s roll call to date on the equity advisory side is: UBS Brinson, Frankfurt, and Metzler Invest for domestic equities; Mercury for European equities; JP Morgan for the US; Schroders for Asia Pacific and Foreign & Colonial for the emerging market brief.
“We use Spezialfonds for all asset classes except mortgages and property and a domestic bond portfolio of DM200m, which is managed in-house.” But on the equity side, all the different mandates are within the same Spezialfond, forming “several segments” within the fund, as Kirschenhofer puts it.
A key achievement in his view has been the implementation of this strategy of having just one fund for the different advisers. The approach obviates the need to have a range of Spezialfonds for the different equity market areas and having to deal with a range of Kags, the authorised investment company required to run Spezialfonds.
“So far this strategy has been very helpful and it enhances the security of our investments.”Under the Spezialfonds unitised mechanism, one unit price is calculated on a daily basis, which enables Wacker “to transfer the advantages of diversification into the PK’s balance sheet”. “With this’umbrella type structure’, we have a fund with the tools to let us show the average volatility in our balance sheet,” he says.
Frequently, when investments are made into a new area through launching a new Spezialfond, the results for the first few months are negative and a deficit occurs. “But in our fund we have the hidden reserves of the other accounts in the fund to compensate for any such problems which arise when investing into new areas. ”This has one very “political advantage” as discussions about particular investments are not undertaken at precisely the very worst time to have them. “Having just one price avoids this!”
In Kirschenhofer’s view, the sub-advisory route opens the field to a wider range of specialist managers than those just operating Kags. He adds: “Having just one Spezialfond is also an economical way of handling investments.” Should the PK want to fire a manager it is much easier to stop their advisory role than to close down a Spezialfond and to transfer assets from one fund to another, with the notifications and other regulatory requirements involved. However, Wacker is quick to point out that so far no such manager changes have been necessary in their case.
A global custodian is essential to run the structure as well as to collect and report the information from the different portfolios on a common basis, he reckons. Though problems can arise where the global custodian uses different systems to the Kag. On a day-to-day basis, where any differences do emerge, say in valuations, it is usually possible to resolve these quickly. To his mind, this shows that there are “real controls”operating. “Compare this to where everything is provided by one banking group and everyone has to rely on others in the group, no one can control a colleague to the same extent as they can a business partner from another group.”
After some teething problems, the structure now runs smoothly through the global custodian and the PK has an on-line connection to the depot bank of each of its Spezialfonds on a day-to-day basis. “On the equity fund side, every segment of the fund has its own benchmark and it is quite easy to control all the managers and to monitor what is happening. The great advantage of a global custodian is that we have all the funds valued using the same system.”
The Kag is run by the Universal group in Frankfurt. “They are very expert in the area and have a huge capacity for record keeping and all the control functions,” says Kirschenhofer. Credit Suisse is the global custodian, which is very customer-orientated and tries to solve any problems likely to come up immediately , he adds.

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