Versorgungsanstalt des Bundes und der Länder (VBL), Germany’s supplementary pension provider for public sector employees, plans to increase allocations to private markets, a major move as the scheme progresses to implement its investment strategy.
“We see private equity and private debt as very attractive asset classes from a risk/return perspective and a good match for our long-term, and very predictable liabilities, which is why their allocation will continue to grow in the coming years,” VBL’s chief investment officer Michael Leinwand told IPE.
VBL takes a prudent approach when investing in private equity or private debt to diversify allocations across sectors, vintages and asset managers and general partners (GPs), the CIO added. “We have selected and onboarded best-in-class asset managers for the key asset classes.”
VBL will finance allocations to private equity and private debt through “new premiums and a mix of public equities, gold and cash” as its portfolio assets grow, according to Leinwand.
The scheme is pursuing its investment strategy in private markets “with discipline, strong risk management and aims for a good diversification,” he continued.
Investments in infrastructure contribute to diversification and returns, and regular long-term income, while the transition to renewable energies opens up new investment opportunities in the next few years, the scheme wrote in its financial statement for 2023, the latest available.
The still relatively high interest rates, spread levels, and good fundamentals make investments in corporate bonds with good credit ratings attractive, the statement added.
The scheme is also further increasing the duration in two funded plans in order to improve its asset/liability management profile.
The likelihood that the central banks’ cycle of interest rate hikes has ended, and that interest rate cuts will be limited, means that the duration of its bond portfolio in 2024 should be brought closer to that of the liabilities side, VBL wrote in the financial statement.
“Our strong focus on asset/liability management has led us to increase the interest rate duration of our portfolio in order to reduce re-investment risk,” Leinwand explained.
Assets under management totalled €59.31bn at the end of last year, up 10.5% year-on-year, according to the scheme’s latest financial statement. VBL investments achieved returns of around 6.8% in 2023.
The scheme has invested around €3.5bn in green, social and sustainable bonds, as of the end of 2023, with a significant share of impact investments aiming to reduce greenhouse gas emissions, and a focus on projects increasing energy efficiency, and promoting the use of renewable energies, it added.
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