The German provider of occupational pensions for employees of the Catholic Church and charitable sectors, Kirchliche Zusatzversorgungskasse des Verbandes der Diözesen Deutschlands (KZVK), with €34.12bn of assets under management, has shifted its investment strategy towards fixed income in developed countries.
According to its 2023 annual report, the scheme built up its fixed-income investments within funds of funds (FoFs) bundling listed investments, and via target funds (Zielfonds), picking out government bonds from developed countries and corporate bonds in the investment-grade range.
This marks a turnaround from 2022, when the pension fund opted to cut its exposure to government and corporate bonds in developed countries.
In addition to increasing its allocation to bonds in developed countries, it also strengthened the scope of currency hedging transactions due to the temporarily strong rise in the value of the US dollar, it said.
Last year, the scheme’s strategic asset allocation was tapped to consider investment opportunities stemming from the interest rate increase, which led the scheme to benefit from the market environment through targeted investments, said Oliver Lang, the scheme’s chief financial officer, in the report.
As a result, equity investments were cut, particularly European stocks as the scheme’s portfolio was overweight the asset class compared with other regions, KZVK said.
The scheme made a new round of investments last year totalling €1.81bn, including €1.24bn to take over investment funds’ shares, €223.91m in bearer bonds, €235,51m in loans, €32.77m in deposits at credit institutions, and €83.71m in private equity, according to the report.
New investments in bearer bonds and loans were made to almost exclusively purchase long-term fixed-interest securities, and to hold them until maturity to cover future obligations, the scheme said.
Investments were primarily made in bonds issued by countries in the euro-zone, privately placed registered bonds of European companies, for example a publicly owned German real estate company, and an Eastern European bank with an explicit government guarantee, it added.
The scheme also reinforced its infrastructure portfolio through fund investments, primarily in Europe, and through a new indirect investment in a German power grid operator, it said without disclosing further details.
This is also in contrast to 2022, when it expanded fund investments in infrastructure globally, in the UK and in Asia.
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