Germany’s biggest public pension fund plans to invest more in private equity and hedge funds and reduce its bond holdings as low interest rates curb returns.
“We started committing the first funds to private equity in 2007 and we are now beginning to reap the first rewards,” said Andre Heimrich, chief investment officer of Bayerische Versorgungskammer, in an interview in Munich. “There is still room for expansion and we could imagine doubling our share of private equity investments.” BVK currently has about 4% of its assets committed to buyout funds.
BVK, which had €60.5 billion ($76.5 billion) in assets at the end of August, manages 12 pension plans overseeing compulsory retirement funds for doctors, architects, lawyers, Bavarian lawmakers and chimney sweeps. The company, part of the state of Bavaria’s interior ministry, is also seeking more investments in infrastructure, hedge funds and real estate.
“The current low-interest-rate environment will persist for some time,” Mr. Heimrich said. “In Germany, we even might not have reached rock bottom yet.”
As a result, BVK plans to reduce fixed-income holdings, such as government bonds and covered bonds, to about 50% of its investments from 60% currently, Mr. Heimrich said.
In infrastructure, BVK has placed about 3% of its assets through specialized funds that hold stakes in the likes of airports, harbors, electricity meters and prisons.
“We would like to do much more, but there are way too few projects on offer,” Mr. Heimrich said. “It would be a perfect asset class for us due to its long duration and above-average returns.”
BVK expects an average return on investment of 4% this year, higher than the minimum needed to meet commitments to pensioners, currently at about 3.7%, Mr. Heimrich said.
Apart from investing in real estate funds, BVK has also been providing direct lending to commercial real estate projects as banks left an opening in recent years.
