REAL ESTATE - BVV, a €17.7bn pension fund serving Germany’s financial services industry, plans to raise its exposure to real estate to at most 8% over the long-term and is mulling an initial investment in private equity.
As reported by IPE, BVV has 84% of its €17.7bn in assets invested in fixed income, 80% of which are government bonds and 4% of which are corporate bonds. BVV does all its own government bond investing.
Another 11% is invested in equities and another 4% in real estate, including direct holdings in Germany. Finally, €120m, or less than 1% of assets, is invested in hedge funds.
Now Rainer Jakubowski, BVV’s chief executive responsible for portfolio management, has told Germany’s Börsen-Zeitung that the fund will raise its real estate holdings to 5-8% of assets “in the long-term”.
In the event, the newspaper said the fund would rely chiefly on European property funds. It added that at the same time, BVV would divest properties it owns in Germany.
Jakubowski was also quoted as saying that BVV had set aside €170m for an initial investment in private equity. “We are currently reviewing asset managers, although I can’t tell you today when the investment will take off,” he told the newspaper in an interview.
Regarding the performance the fund’s investments in 2005, Jakubowski said BVV’s equities returned between 8% and 12%, while bonds “performed well”.
According to BVV’s CEO, the big disappointments have been the scheme’s hedge fund investments, first made in late 2004.
Instead of, as originally expected, returning between 6% and 9%, BVV’s hedge funds underperformed bonds in 2005. The newspaper said Jakubowski had given BVV’s hedge fund managers until the end of 2006 to show “an above average return”.
Prior to the problems with hedge funds, Jakubowski had told IPE that the pension fund would consider increasing its exposure to the asset class to a maximum 3-4%.
Although BVV’s net return for 2005 was not disclosed during the interview, it would have been between 5% and 6% under German accounting rules (HGB). BVV’s market return for the year was certainly higher, as HGB forces it as well and other German Pensionskassen to build reserves.
Berlin-based BVV has 313,000 contributing members, from whom it took in around €500m in 2005. It also has 78,000 pensioners.