Vereinigte Pensionskasse AG (VPK), founded in 1990 is the largest multi-employer pension fund in Austria with a total of e1.9bn under management. Contributions to the pension fund in 2001 counted more than e106m.
Paying attention to the volatile capital markets – on the bond side as well as on the equity side – VPK decided in late 2001 to create an Absolute Return Fund. The fund’s projects are to maximise and stabilise the return of the total bond portfolio. In January 2002 the fund – named GF 81 – started with a volume of roughly e50m.
The original structure of the fund´s assets came out at 47% in structured bonds, 22% in capital guaranteed hedge fund of funds, 23% in straight bonds, 5% in mortgage bond funds and 3% in cash.
The first and largest pillar of the fund is in structured bonds. The fund only invests in interest-linked structured bonds that show an attractive yield pick-up versus straight bonds. Some of these bonds are callable beginning in 2012 having a fixed rate of interest return. Another larger amount is invested in CMS (swap) linked bonds with yields at or above long term interest rates. These are sometimes provided with an ambitious minimum coupon. Finally, the fund invests in money market reverse floating bonds, that should benefit from a low-inflational scenario in the Euro-zone. For reasons of diversification, VPK has added some Danish mortgage bonds to the mix that show attractive valuation and rating. Thanks to the broad mixture of senior debt, subordinated debt and tier one bonds, the average actual rate of return for the fund is 7.01 %.
The fund’s second investment pillar combines highly liquid and rated government bonds and jumbos with investment grade corporate bonds that show relatively low correlation to treasuries as well as to structured bonds. This pillar is managed in a prudent way with a tight match to JPM EMU duration, spreading the interest rate risk and the valuation risk of structured bonds. A further topic is the EMU-convergence of Scandinavian countries that is included in this fund.
The third investment pillar contains a mutual fund of Erste Sparinvest KAG that was raised in the fourth quater of 2001. A mortgage bond fund invests in triple A rated US-mortgage bonds (Ginnie Maes), which show an attractive yield compared to treasuries – and for the same reason as straight bonds – have a historical low correlation with the other bond classes invested.
Finally, following a three-stage search the fund started to invest in three capital guaranteed multi-manager/multi-style hedge funds of funds. VPK says its main focus in selecting the right manager alongside performance and track record was the manager’s research capabilities, ability to outperform the market and the internal and external due diligence and risk control. The fund invests in notes due between 2009 and 2013 that will redeem at 100% plus NAV at maturity. The managers selected to run this part of the portfolio are Man Investment Products, HVB Alternatives and SMN/Vienna (arranged by BNP Paribas). Each of the managesr has a different focus in selecting strategies and exposure as well as in risk/return expectation.
While the scheme is aware that the Absolute Return-Fund might underperform classical bond funds in certain market periods, VPK says it believes that it is a good and functional instrument to diversify, smooth and increase the return of a bond portfolio. The amount of this fund in VPK’s portfolios ranges between 5–10 %. As a long term investor VPK believes in outperforming government bond funds with this Absolute Return fund in the long run.

Topics