Church pension fund actively boosts its allocation to real estate assets

The Cologne-based Pensionskasse Kirchliche Zusatzversorgungskasse des Verbandes der Diözesen Deutschlands (KZVK), a German provider of occupational pensions for employees in the Catholic Church and charitable services, said it had further expanded its investments in real assets, regionally and outside Europe.

The pension fund had announced earlier this year that it was re-structuring its investment strategy “more along Anglo-Saxon lines”. This will involve the weighting of its two principal fund portfolios from a 50:50 ratio to more like a 33:66 ratio, away from fixed interest investments to a more actively managed approach. To meet its obligations, it is now targeting a 3.5% average return, and to do this over the longer term, it aims to have nearly 50% invested in “real” assets – shares and private equity as well as infrastructure and real estate.

According to its latest financial statement, KZVK invested a significant amount directly in infrastructure and real estate, particularly in renewable energy infrastructure in Europe. It also further increased holdings in private equity.

The statement showed that returns from capital investments reached €665.5m last year, up from €619.3m in 2018, including €3.6m from equity holdings and €22.6m from real estate investments. This was due to higher returns from investments but also from several disposals. The book value of its investments also increased by €1.3bn last year.

KZVK’s real estate portfolio invests 45.6% in three property funds focusing exclusively on the German market, worth €678m, and 54.4% in 18 European real estate funds worth €808m. Additionally, the Pensionskasse acquired six real estate companies for the value of €90.5m. For infrastructure, KZVK invests through two funds, which are worth a combined €64.9m.

The COVID-19 pandemic has had a considerable impact on the valuation of KZVK’s investments, the pension fund said. While the fair value of its investments exceeded its book value by €3.8bn, by March 17th however, the value of these hidden assets had decreased by 36.4%, according to the financial statement.

Its assets totalled €29.2bn in 2019, capital investments stood at €21.2bn and actuarial reserves reached €28.8bn last year, with a funding level of 74%. It has more than 1.3 million insured, and 5,400 employers are part of its scheme. The pension fund has to pay a pension to 186,000 pension-entitled recipients from 13,000 church-run organisations, making it one of the biggest pension funds in Germany.

The pension fund has been in the news recently following an article in the Frankfurter Allgemeine Zeitung  which questioned the KZVK’s determination to increase its allocation into private equity from its current €490m, an investment approach forbidden by other Catholic dioceses, such as the bishoprics in Cologne and Hildesheim.