SOKA-BAU, the German umbrella organisation for two pension funds for employees in the construction industry with more than €14bn in total assets, has adjusted its strategic asset allocation to increase allocations across asset classes. The move follows a reform of the investment rules for Pensionskassen and pension funds for professionals (Versorgungswerke), approved by the German finance ministry in February,
SOKA-BAU will take advantage of the new risk budget quota, increasing allocations from 35% to 40% for equities, private equity, hedge funds, commodities and high-yield bonds.
“Specifically, this means increasing the allocations to infrastructure, private equity, equities, and riskier fixed income. Within the risk [budget] allocation, we plan to allocate 22% to equities, 10% to private equity, 5% [for a total of 10%] to infrastructure, and 3% to high-yield bonds,” chief investment officer Gregor Asshoff told IPE.
The CIO added that the target allocation for infrastructure will increase from the current 8% to 10%. The largest share of SOKA-BAU’s allocations to infrastructure is made through equity investments.
The asset owner has already resorted to the opening clause of the investment rule that allows pension funds to increase allocations in asset classes beyond what is allowed by the country’s investment ordinance, and it targets new investments in the future based on the new rules.
“This new [investment] freedom will be used in part to increase private equity by a further 2% to 10% [of total assets],” Asshoff said.
SOKA-BAU has long been actively pushing for a review of the investment rules together with occupational pension association aba.
The adjustment to the investment rules enables the asset owner to better diversify its investment portfolio across all so-called risk asset classes, and it “opens up opportunities” for higher returns for its members, the CIO said.
He added that, since the quota for private equity investment was not changed by the finance ministry, there is initially some flexibility for allocations to equities and infrastructure.
The German finance ministry has introduced a separate quota of 5% for security assets to specifically invest in infrastructure. So far, infrastructure assets are categorised as private equity or real estate investments.
SOKA-BAU has already incorporated the new investment rules, put forward as part of the second-pillar reform by the traffic-light coalition government of the Social Democrats (SPD), Greens and the liberal party (FDP), that collapsed in November, in the draft of its strategic asset allocation for 2035.
The Zusatzversorgungskasse des Baugewerbes (ZVK), the largest of the two SOKA-BAU sub-funds, with approximately €10bn in total assets, targets 20% of assets invested in equities, 41% in interest-bearing securities, 18% in real estate, 8% in private equity, 8% in infrastructure, 4% in private debt, and 1% in other types of investments by 2035, according to the scheme’s investment policy principles for 2025.
ZVK also plans to further broaden its international asset allocation to diversify risk, with investments outside the euro-zone and in other currencies that will “significantly strengthen” its portfolio, the scheme added in the paper.
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