Having significantly reduced its exposure to real estate in recent years, German pension fund WPV is in a position to make new investments. Managing director Hans-Wilhelm Korfmacher tells Richard Lowe how he wants to use the opportunity to invest in the Americas for the first time

The €1.6bn pension fund for chartered accountants in the German province of North Rhine-Westphalia (WPV) has a positive view on real estate. Hans-Wilhelm Korfmacher, managing director at WPV, explains that the fund is below its target allocation of 12% real estate, so is looking for new investments. However, the asset class is so attractive that he would like to go to a higher allocation - perhaps as high as 15% - within the next two or three years.

The reason, of course, is the possibility of rising inflation, a prospect that German investors take very seriously. "Asset classes with real assets behind them are good in an environment where we could see higher inflation than we currently expect," Korfmacher says.

The vast majority (65-70%) of WPV's assets are invested in fixed income and Korfmacher would like to invest in alternative investments that have a low correlation with bonds and are likely to perform better under inflationary conditions. To this end, infrastructure is another asset class that WPV has its sights set on. But Korfmacher says the pension fund will have to take the move into alternatives step by step; for the time being real estate is top of the agenda.

WPV can make significant new real estate investments today because it reduced its weighting to the asset class during 2008 and 2009 from around 20% to 9% by not making further new real estate investments and selling interests in mutual funds and other liquid investments. Korfmacher reasoned at the time that its real estate portfolio (the majority of which is located in Europe) would be affected detrimentally by the financial crisis but with a time lag compared with other investments. "Real estate is one of the last asset classes to react to a crisis, so I tried to reduce real estate assets in our portfolio," he says.

With the exception of a commitment to an Asia-Pacific fund of funds vehicle, WPV's real estate investments have been confined to Europe. However, the pension fund wants to use this opportunity to begin investing in the Americas for the first time.

The pension fund has made its first move on this front by committing to a fund investing in core real estate in Canada. For the time being WPV will focus on North America, but might well begin to look at the more emerging markets of Mexico and Brazil further down the line.

"Most of our assets, except for a small proportion in Asia, are in Europe," Korfmacher says. "We are looking for investments in the Americas, not in the US especially, but in the Americas. Diversification is very important for us in all asset classes, but in the past we [the fund] were not big enough."

Korfmacher thinks this is a good time to begin building an exposure to the Americas and is thankful that the pension fund was not already invested there over the past three years given the market dislocation it has experienced.

WPV will be seeking to target a number of property sectors in the Americas, incuding residential, retail and office. The residential sector is looking particularly attractive, Korfmacher says. It is likely to perform well even if the economic recovery is slow because there will always be demand for apartments. Also, the sector has been less volatile than others.

While the focus is very much on the Americas, Korfmacher is keen to expand the pension fund's current European portfolio. "The fund is growing very fast, so we do also need new investments in Europe," he says.

Approximately a quarter of WPV's real estate investments are in Germany. This weighting is essentially a result of Germany being one of the largest property markets in Europe rather than it being WPV's home market.

"We are not a German investor, we are a European investor," Korfmacher says. Nevertheless, the pension fund prefers investing in euro-zone markets (the pension fund does invest in other European markets as well, including the UK) because of the absence of any currency risk.

Korfmacher has taken two lessons from the financial crisis. The first is the importance of working with local managers. "One thing is that I want to have a manager in the country in which I am invested. So, I don't want a manager, for example, that works in Frankfurt or in Munich and invests in the US," he says.

"The other lesson I have learned is that I am very interested to know who the other investors are in the fund. I would prefer club deals."