The pension scheme for the German speciality chemical company Evonik is planning to hike allocations to fixed income to 30% as rising interest rates have driven yields up.
The scheme has adjusted its asset/liability management models to the highest interest rate, preferring interest-bearing instruments whose coupon is now appealing to Pensionskassen, Stefan Hentschel, head of pension asset management at Evonik Industries, said at the BAI Alternative Investor Conference in Frankfurt this week.
The scheme had reduced its allocation to fixed income during the past years of low or negative interest rates to around 20%, reallocating to private markets, he said, adding that now infrastructure for the energy transition (Energiewende), private equity, and direct lending offer interesting investment opportunities.
Pension assets at the company are also invested in equities, ETFs and through healthcare mandates looking at the longevity angle, Hentschel said.
Commenting on changes to its portfolio management in a challenging 2022, Hentschel said that for many it was a disastrous year with losses on fixed income and equities.
Last year was worse in terms of performance for mixed portfolios of 80% bonds and 20% equities, which returned -17%, compared to -8% during the financial crisis in 2008, he said citing an internal analysis.
Illiquid investments, for example in private equity of direct lending, have ultimately contributed positively to the performance of Evonik’s portfolio with net asset values almost unchanged, while physical real estate assets devalued, and REITs and listed real estate companies suffered, he said, adding that valuations of private equity companies change as leverage becomes costly due to higher interest rates.
Evonik manages close to €10bn in pension assets, including €5.5bn through the Pensionskasse Degussa and €3bn through a Contractual Trust Arrangement (CTA).
In Germany the company offers pension plans through the Pensionskasse, which has Evonik Operations as sponsor, the Unterstutzüngskasse, and direct pension promises (Direktzusage) allocated to Evonik Pensionstreuhand applying an asset/liability matching strategy, according to Evonik.
The company also offers pension plans for employees in the US and UK.
Evonik has recorded a reduction in pension provisions to €1.35bn at the end of 2022 from €2.40bn at the end of 2021, driven by a significantly higher discount rate of 4.1%, with a funding level for pension obligations standing at 84%, according to the company’s financial statement for 2022.
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