With around 19,000 members and assets of e1.1bn at the end of 2000, the Nestlé Pensionskasse VVag, has showed a very focused and sophisticated approach to investments for a long time.
The fund, which back in 1977 launched its first equity Spezialfond, was one of the pioneer schemes to become actively involved in equity investment, and since then has kept itself up to date in everything to do with investment strategies and new opportunities to enhance returns.
Following market trends and developments in the asset management industry, the fund has adapted its portfolio to today’s market conditions – internationalising its asset allocation and at the same time, updating and expanding its benefits options.
The asset allocation strategy, that was decided by the fund’s investment committee, mainly consists of 50% of total assets investing in equities, 40% fixed income and 10% real estate investments. In terms of currency exposure, 60% of total assets are invested in Euroland and the remaining 40% in foreign markets.
Over the past three years, there have been changes in the fund’s portfolio. On the equity side the investment committee decided to cut down the number of managers and KAGs in charge of the fund’s assets, from five to three and three to two respectively.
Today, the fund has two equity Spezialfonds, both subdivided in three segments and including active and passive managers. The fund that invests globally, looks at non-European investments exposure within the equity part of the portfolio.
Investments in emerging markets are done through investment funds for institutional investors. This is because the fund considers that issuing their own fund to cover this area wouldn’t be worthwhile due tothe small volume of assets invested in this asset class and the high administrative costs involved in setting up such structures.
Since April 2000, within the fixed income arena, the fund started outsourcing part of its bond portfolio. Before that, the management of this part of the portfolio was 100% in-house, following a buy-and-hold strategy with a 10-year investment horizon and focusing on the German market. This approach proved to be very successful.
However, more recently, changing market conditions made it clear that an expanded ‘domestic’ market into the Euro-zone could bring more opportunities than those offered by the German market alone. Therefore, the fund decided to hire international expertise, initiating a worldwide manager search conducted in conjunction with other Nestlé pension schemes.
As a result of this manager search, three Euroland bond mandates were awarded; two of them active and investing in both government and corporate bonds and one passive that only concentrates on the government bond sector.
The Nestlé Pensionskasse allocates 10% of its total assets into property investments. In this area, the fund has been reducing its exposure to residential real estate investment and today mainly focuses on offices and commercial business.
Although most of the real estate assets are directly managed by the fund, there is also a significant exposure to property funds that now represent 20% of the portfolio’s total exposure to this asset class.
For the time being, the fund has been extremely cautious in everything to do with exposure to alternative asset classes, in particular hedge funds. Although the fund prefers to use in-house expertise instead of external consultants, especially when it comes to manager selection, in September 1999 an asset-liability study was commissioned to an external provider. The study, that was finalised in February 2000, brought very satisfactory results showing that the liquidity ratio was expected to rise to 158% by the end of 2003, and that the fund has enough capital to cover liabilities. Therefore, no changes in investment strategy appeared to be needed, and the fund has maintained the same approach to investments since then.
The well structured investment strategy has positioning the Nestlé Pensionskasse VVag among the top performing pension schemes within the Nestlé group universe, which is being used by the fund as a benchmark to compare investment performance.
On the administration and benefits structure side, the scheme has also been pioneering in adapting changes in regulation and taxation into its functioning. At the beginning of the last decade, the company’s retirement pension system was supplemented by a reinsured support scheme in addition to the pension scheme.
More recently, and following the pension reform that is taking place in Germany, the scheme was among the first implementing some of the conditions required by the new legal framework which resulted in a re-structuring of the scheme’s organs. The catalogue of benefits is also being updated and expanded with aim of making the fund more flexible and attractive to members.

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