GERMANY - German pension funds are looking for opportunities in infrastructure investments as prices in the real estate sector have already "rallied too far".
Daniel Just, head of asset management at the €53bn Bayerische Versorgungskammer (BVK), told IPE he had "lost appetite" for most real estate investments, as prices had "rallied extremely" in sectors such as direct German real estate, Spezialfonds abroad and real estate funds of funds in specialist sectors.
With respect to residential real estate, Just said Munich was "overpriced" and that Berlin, Frankfurt, Hamburg, Cologne, Stuttgart and Düsseldorf offered much better investment opportunities.
He said he would have liked to invest more in German real estate last year, but he failed to identify any good investments in the country and thus looked further afield in Europe.
"In fact, we see more investment opportunities in the infrastructure sector," he added.
Just said the BVK was looking at infrastructure assets not only in Germany but across Europe, including hydro power plants, social infrastructure such as prisons, and renewable energy such as wind or infrastructure portfolios.
Currently, the German scheme has a 12% allocation to real estate - including debt financing - and a 2% allocation to infrastructure.
"We started later with our infrastructure portfolio and are still building it," Just said.
Meanwhile, Lutz Horstick - head of the securities and loans department at the €9bn pension fund for doctors in Westfalen-Lippe (ÄVWL) - said the scheme had no plans to increase an all-time high real estate allocation of 20%.
Last year, the fund made headlines after it acquired a large share in grid operator Amprion, and Horstick confirmed that the ÄVWL was looking into similar financing projects in the infrastructure sector.
"On the real estate side, we are often approached for financing, as banks are out of the game," he added. "But [they are] mainly volatile portfolios of undeterminable quality that are yielding well below our target interest rate."
In the real estate sector, the ÄVWL is currently focusing more on stable rental income and stronger cash-flow yields than pure appreciation in value, according to Ulrich Sonnemann, executive assistant to the chief executive.
"We do have and seek opportunistic investments as well, but overall we are focusing on cash-flow returns in the portfolio," he said.
This means that, apart from offices and retail property, the ÄVWL is also looking at residential real estate, logistics and nursing homes, which "could also be seen as infrastructure".
Sonnemann said there was a "considerable shift" from direct to indirect real estate, as the Versorgungswerk reviewed whether property management should form part of its core business.
"But, in any case," he added, "we keep our own expertise on board in order to control and steer the investment policy."
Read more about German pension funds' real estate and infrastructure portfolios in IPE's April issue.