GERMANY – The Ärtzeversorgung Niedersachsen (AEVN), a €5bn pension fund for physicians in Lower Saxony, has blamed low bond yields for its 5% return for 2005 – one of the lowest among European pension funds.

“Investing by the pension fund has become more difficult because of developments with interest rates on fixed income,” AEVN wrote in a recent newsletter to its members and pensioners.

Citing an example, the fund said interest rate on 10-year German Pfandbriefe, or covered bonds which are one of AEVN’s main investments, had fallen to 3.1% in September 2005.

AEVN did not disclose its asset allocation for 2005 – another year of strong equity markets.

At the end of 2004, the fund had allocated 56.9% to fixed income, either via direct investments or bond fund shares. The fund’s equity exposure was 24.1%, while allocations to real estate – both commercial and residential – totalled 15.5%.

Last year, Germany’s real estate market was still weak, but AEVN did not indicate whether this weighed on its return for 2005. It only noted that in commercial property, rents had stopped falling and that demand for space “had stabilised at a low level.”

The fund added that it owned new residential housing in “good locations like Hannover, Frankfurt and Munich”.

Karsten Müller-Uthoff, one of AEVN’s two managing directors who is head of investments, declined to comment further on the fund’s results for 2005.

While AEVN’s 5% return for 2005 is lower than for other European pension funds – many of whom have already reported double-digit returns thanks to last year’s bull run in equities – it is in line with its German peers.

Last August, ABV, an association that represents so-called Versorgungswerke like AEVN, reported that the average return for the funds had declined to 5.28% in 2004 from 6.05% in 2003 amid low interest rates.

And despite the positive equity markets of that year, ABV said its members had cut their average equity exposure to 14.9% in 2004 from 15.9% in 2003.

In its newsletter, AEVN also reported that it had 24,085 contributing members at the end of September 2005 compared with 23,702 a year earlier. The fund also had 7,912 pensioners.