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Germany’s Versorgungswerke collectively cover over 1 million members, encompassing a wide range of professions including doctors, architects, and lawyers
Germany’s professional pension funds, or Versorgungswerke, have long been regarded as reliable bastions of financial security for the nation’s liberal professions, including dentists, pharmacists, and architects. However, recent revelations about significant losses in two major funds—the Berlin Dentists’ Pension Fund and the Schleswig-Holstein Pharmacists’ Pension Fund—have brought this reputation into question. These losses, stemming from high-risk investments in real estate and mezzanine loans, raise serious concerns about governance and transparency within the system.
The Berlin Dentists’ Pension Fund is grappling with write-downs of €65 million in 2023, following earlier losses of €46 million in 2022. These write-offs represent more than 3 percent of the fund’s total assets of €2 billion, according to WirtschaftsWoche, which evaluated the fund’s annual financial statement. With returns plunging to just 0.6 percent in 2023, well below the 3 percent needed to meet long-term obligations, the fund’s financial health is under severe strain. Despite this, the fund’s leadership has struck a dismissive tone, describing the situation as merely a “job” to be managed rather than a critical problem to be resolved.
The fund’s foray into unconventional and speculative investments has been particularly controversial. Over recent years, the Berlin Dentists’ Pension Fund has channeled significant resources into ventures such as a shrimp farm, a recycling company in Ghana, a hotel group, and several start-ups. These moves came at the expense of safer, interest-bearing securities, abandoned during the low-interest era in favor of riskier bets promising higher returns. While the exact details of which investments were impaired remain undisclosed, these write-downs underscore the perils of chasing yield in uncharted waters. This fund serves approximately 5,000 dentists in Berlin, who rely on it as their primary source of retirement income.
Meanwhile, the Schleswig-Holstein Pharmacists’ Pension Fund faces its own reckoning, with €54.9 million in losses tied to mezzanine loans—a risky blend of debt and equity—and troubled real estate projects. According to Handelsblatt, the fund deviated from regulatory investment guidelines in 2020, seeking greater exposure to the booming property market. By 2022, mezzanine loans accounted for nearly 20 percent of its portfolio, with an additional 25 percent directly or indirectly invested in real estate. One high-profile casualty of this strategy was the “Canyon” project in Frankfurt, a prime office development that collapsed into financial restructuring, leaving the fund with a total write-off on a €25 million loan. The Schleswig-Holstein Pharmacists’ Pension Fund covers around 4,400 pharmacists, making it a critical safety net for its members.
Exposure of up to €20bn of high-risk investments, including mezzanine
The losses at these funds are emblematic of a broader issue within Germany’s Versorgungswerke. During the prolonged low-interest era, many professional pension funds moved aggressively into high-risk investments, including mezzanine real estate loans, to generate returns. FAP Group estimates that up to €20 billion in such loans could be at risk across institutional investors in Germany. Unlike Anglo-Saxon pension systems, these funds lack the robust internal expertise required to manage defaults or restructurings, instead relying heavily on opaque external structures and consultants.
Transparency within the system is also a glaring weakness. Many Versorgungswerke publish limited or no public financial data, shielding critical information about their investment strategies from scrutiny. Handelsblatt’s investigation reveals that mezzanine investments are often hidden in annual reports or disguised within broader categories. One insider noted, “It’s like a casino. The purchase prices were only linked to interest rates, not realistic expectations of value.”
These losses have immediate consequences for members. The Berlin dentists and Schleswig-Holstein pharmacists now face stalled pension increases, with further write-downs anticipated in 2024 and beyond. Pharmacist Yannick Detampel, a vocal critic of the Schleswig-Holstein fund, lambasted its leadership for “irresponsible” decisions and lack of accountability. “Despite massive losses, no one has taken personal responsibility,” Detampel told Handelsblatt. “It’s scandalous.”
Overall, Germany’s Versorgungswerke collectively cover over 1 million members, encompassing a wide range of professions including doctors, architects, and lawyers. The situation exposes systemic flaws that could threaten the long-term viability of these funds. Weak governance, opaque operations, and an overreliance on speculative investments have left many funds vulnerable to market shifts. As regulators and members call for reforms, these cases may well represent just the tip of the iceberg in a much larger crisis looming over Germany’s professional pension system.