GERMANY – BVV, Germany’s largest Pensionskasse with €17.7bn in assets, says its net return under German accounting rules improved to 5.4% in 2005 from 5% in 2004.

The rules require Pensionskassen - traditional pension funds - to build reserves to, for example, shield against sudden capital market fluctuations. As a result, BVV’s actual market return was higher, though the fund did not disclose it.

Indeed, in its annual report, BVV said its reserves totalled €1.2bn at the end of 2005, up €467.5m from the end of 2004. It added that “dormant liabilities” totalled €1.8bn at the end of 2005.

BVV, a Berlin-based fund that insures almost 318,000 people in the financial services industry, also provided more precise detail regarding its asset allocation.

BVV said that during 2005, it cut exposure to fixed income from 80.3% to 73.6% of total assets. At the same time, BVV’s exposure to non-fixed income rose to 24% from 18.3%.

Of the 24% invested outside of bonds, the pension fund said 11.7% was allocated to equities. “As before, the lion’s share of our equity investments are shielded against sudden drops in market prices,” it said.

BVV also said its exposure to real estate was 4.4% at the end of 2005 – including 1.1% directly held and 3.3% invested in funds. It noted that its diversification out of direct property investments and into European funds continued during 2005.

BVV did not make any comments about its hedge fund investments, which make up less than 1% of assets. But Rainer Jakubowski, BVV’s chief executive, has already acknowledged that the investments have been a disappointment.

Instead of, as expected, returning between 6% and 9%, BVV’s hedge funds underperformed its bonds during 2005, Jakubowski told Germany’s Börsen-Zeitung in April. The newspaper said Jakubowski had given BVV’s hedge fund managers until the end of 2006 to show “an above average return.”

Jakubowski also told newspaper that the BVV had set aside €170m for an initial investment in private equity, though he did not indicate when that would occur.

Regarding its balance sheet, BVV said that it improved its capital ratio to 5.03% - above the regulatory requirement – in part by issuing €200m worth of bonds during 2005.

Turning to the outlook, the fund said its prospects would be helped by the government’s promotion of second-pillar pensions and the trend among German companies to outsource pension liabilities.