GERMANY - Hoechster Pensionskasse (HPK) divested its equity holdings in 2006 despite it being another good year for equities.

According to the annual report for €313m multi-employer pension fund, which grew out of the old Hoechst chemical pension scheme, HPK's exposure to equities went from 16% in 2005 to zero in 2006.

At the same time, the scheme's total exposure to fixed income - including Pfandbriefe (German covered bonds) - increased from 60% in 2005 to 73% in 2006.

HPK has now increased its equity exposure slightly since the end of 2006, allocating up to 3% in listed stocks.

But commenting on its asset allocation, the fund's board said in its report: "The investment strategy was largely influenced by a number of key factors, including insurance-related requirements and legal requirements concerning solvency and investing."

In this context, Andreas Hilka, head of asset management at HPK, noted: "The point is that we wanted to be sure to build up our risk budget. We aim to complete that process by the beginning of 2008 and after then we will be in a position to invest in more risk-oriented asset classes."

According to Hilka, that could mean investing in equities, "but also alternatives like hedge funds or even real estate".

In an interview with IPE a year ago, Hilka was cautious about hedge funds.

"Our challenge is that we want steady and reliable returns. But the products out there are non-transparent, expensive and hard to account for," he told IPE, adding, however, HPK would hedge funds in the mid-term.

Asked why he felt differently about hedge funds today, Hilka replied: "Since then, the products we've seen have become a lot more attractive in terms of cost and transparency."

The remaining allocation of HPK's assets were split between mortgage loans (20%) and cash (6.5%) last year, contributing to a return of 4.6%  for the HPK fund - above the minimum 2.25% it, as a Pensionskasse, guarantees as a return on pension savings.

HPK's return was, however, held back in part by its decision to increase reserves by €47m, according to Hilka.

"The return was lower because of our need to build reserves, but it also should be said that the return reflects a very risk-averse portfolio.

"The message to our insured is that for the foreseeable future, our net return will be around 4.5%, if capital market conditions do not change significantly. Looking around in the market place, this will be quite an attractive result," he added.

At the same time, HPK has also reported the number of its insured jumped 24% last year to total 75,137.

These employees are in addition to the 110,000 HPK already insured via the scheme for the former Hoechst chemical conglomerate. That scheme has around €5.5bn in assets, but is closed to new entrants.