GERMANY - BVV, a pension fund for Germany's financial sector, says it raised its assets by €900m in 2006 to €18.6bn and that €1bn is being earmarked annually for new investment.

In an interview with the Börsen-Zeitung, BVV chief executive Rainer Jakubowski said that of the €1bn, around 80% was being allocated to fixed income. Structured products were also increasingly being used in this area to boost returns, he said.

Jakubowski did not provide detail on how the remaining 20% of the €1bn was to be invested. However, in early March, he told German pensions magazine dpn that part of the volume would be used for new investment in private equity and hedge funds.

BVV first invested in hedge funds in late 2004, allocating €120m. Recently, the scheme invested in two private equity fund of funds and says that in the mid-term, private equity exposure could reach 1.5% of total assets.

Speaking to the Börsen-Zeitung, Jakubowski also said BVV was, for the sake of diversification, considering investing in commodities. "However, we won't be able to allocate until the BaFin (German financial services regulator) fully permits our investing in this asset class," he said.

As a German Pensionskasse, or an insurance-type scheme, the BVV provides a minimum guarantee on pension savings, which, in its case, is currently 4% per annum. This is achieved through a mix of conservative investing and close supervision on part of the BaFin.

Jakubowski did not disclose BVV's net return for 2006, but said it would likely be slightly below that of 2005. For 2005, the scheme reported a return of 5.4% under German accounting rules (HGB).

HGB forces German pension funds like BVV to suppress returns in favour of building reserves. Of the €900m in asset growth last year, €500m was contributions that came from BVV's 313,000 insured members.

Finally, Jakubowski reaffirmed that BVV aimed to raise its real estate exposure to 8% of assets in the mid-term from between 4-5% currently. In raising this exposure, the scheme is primarily relying on funds.

According to the BVV CEO, BVV's real estate strategy entails selecting properties in top locations and "excellent but not super expensive logistical and office properties" in "1B" (sub-prime) locations.

BVV's target return for its real estate investments is above 6%.