Leading German pension fund brands infrastructure rule changes ‘useless’ without stress test

New investment rules for German Pensionskassen and professional pension funds are pointless without an appropriate stress test for infrastructure investments, a leading institutional investor has said.

Last month the Federal Finance Ministry approved changes to investment rules for Pensionskassen and Versorgungswerke, introducing a 5% quota for infrastructure investments. It also increased the limit for risk assets from 35% to 40%. Risk assets are defined as equity, private equity and certain debt instruments.

“In our opinion, this asset class [infrastructure] differs significantly from equities or private equity in terms of risk,” Eugen Scheinker, board member of Verka Pensionskasse and of the German Red Cross Pensionskasse, told IPE.

“This should also be taken into account in BaFin’s stress test.” 

Verka, which had €1.7bn in AUM at the end of 2203, according to its latest annual report, oversees Kirchliche Pensionskasse, a multi-employer occupational pension provider, as well as the provident fund VK Kirchliche Vorsorge VVaG.

Scheinker added that BaFin stress tests would encourage additional investment in infrastructure.

“If the stress test remains unchanged, we consider the new quota [for infrastructure investment] to be relatively useless,” Scheinker told IPE.

“We believe the expansion [of investment options in the new investment ordinance], including a dedicated quota for infrastructure investments, makes sense in principle as it provides IORPs with additional investment opportunities,” Scheinker said.

“It is important to note that very few [pension] funds make full use of the risk capital investment quota. Against this backdrop, we do not see the increase as a significant improvement, but rather as an opportunity for a differentiated approach to infrastructure,” Scheinker added.

The impact of the changes can only be fully assessed once corresponding regulations are reviewed and adjusted by the regulatory authority, BaFin, Schenker said.

A BaFin spokesperson told IPE that the Finance Ministry has approved the new investment ordinance in agreement with the financial market authority,

BaFin will assess whether Pensionskassen and Versorgungswerke are adhering to the rules. “That is a work in progress,” the spokesperson added. 

It is possible that BaFin may adjust the stress test for Pensionskassen.

BaFin, which reviews the investments stress test every year, will look to the new investment ordinance to understand whether a review of the stress test is necessary, the spokesperson said.

Other German Pensionkassen are calling on BaFin to implement the rules quickly.

Pensionskasse Deutscher Genossenschaften, the pension scheme for cooperatives and their affiliated companies, welcomed the new infrastructure quota and the increase in the risk assets budget.

“It’s important to have less bureaucracy and more freedom in asset allocation. Such simplifications allow us to operate more flexibly and efficiently,” said Nicole Möbs, chair of the pension fund, adding that the scheme is not yet fully using the potential of the new quotas.

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