DWS has decided to increase its portfolio duration as part of the asset allocation of the Deutsche Bank’s pension plans in September this year, after having halved it last year, to respond to market turmoil hitting liability-driven investing (LDI) strategies in the UK, said Georg Schuh, chief investment officer Germany, during the Handelsblatt occupational pension forum held in Berlin this week.

The decision to increase its portfolio duration came following two instances: firstly as the Bank of England intervened at the end of September to calm the markets and ensure financial stability while carrying on with quantitative easing, and secondly as interest rates fell, the CIO told IPE on the conference sidelines.

Speaking about lessons learned from the UK crisis, the CIO said that in the future the cash and collateral requirements for LDI strategies will be strictly controlled and have to be better modelled.

“It makes sense that physical and derivative mandates are managed by the same manager […] it reduces the risk overall,” he said.

He added that in the future with defined benefit (DB) schemes closing and negative cash flows, the demand for long-dated government bonds and of LDI strategies will decrease.

Liabilities of the Deutsche Bank’s pension plans amount to €20.4bn, including €13bn in Germany, €4.9bn in the UK, €1.3bn in the US and €1bn in other countries, according to figures presented by the CIO during the event.

The assets of DB plans are held in a German contractual trust arrangement (CTA) – and managed by DWS – are allocated to bonds (60.9%) – which within the bond segment mostly is invested in corporate bonds (46.5%) – 3.6% to real estate debt, 5.2% to infrastructure debt, 7% to equities, real estate and alternatives, 4.2% to total return strategies, 3% to a hedging segment, 6% to an inflation-linked swap overlay, 2.7% to an interest rate swap overlay, and 0.7% to a credit default swap overlay, among other asset classes, according to the presentation.

DWS has “steadily” increased its allocation to alternative investments in the last few years, and for equities and European bonds the asset manager has implemented a “dedicated ESG strategy” focusing on reducing its portfolio’s CO2 footprint, the CIO added.

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Luigi is IPE's Berlin-based DACH correspondent. His coverage includes regulation and the latest pensions and investments trends, and, being a native Italian, he also covers Italy’s pensions market. He has reported from Italy and Germany on international politics and business for European and US publications including USA Today, Bloomberg BNA and for the investigative magazine L’Espresso. He was previously Germany correspondent for Mergermarket covering M&A.View full Profile

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