More Fun at Lower Risk: New Opportunities for PRI-Related Asset Management of German Pension Insurance Funds

Hertrich, Christian; Schäfer, Henry

doi:10.1007/978-3-319-10311-2_10

Christian Hertrich⁴ &
Henry Schäfer⁴

Part of the book series: CSR, Sustainability, Ethics & Governance ((CSEG))

3953 Accesses
2 Citations

Abstract

The main focus of our chapter is to assess the suitability of Social Responsible Investments (SRI) for the strategic asset allocation of German pension insurance funds. Our analysis considers prevailing regulation in Germany for asset allocation as well as alternative investment models that disregard the strict investment framework currently in place. Using the Vector Error Correction (VEC) methodology, a multivariate stochastic time series model, we estimate the data generating process of the underlying input variables of a representative asset portfolio. A bootstrap simulation on the estimated VEC models allows generating future return paths of the underlying portfolios. These return distributions will subsequently be used as input for the various asset allocation strategies we have chosen (both outright as well as derivative overlay structures). The empirical results of our research study are valuable: SRI-structured portfolios consistently perform better than conventional portfolios and derivative overlay structures enable pension fund managers to mitigate the downside risk exposure of their portfolio without impacting average fund performance.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution

Chapter: USD 29.95; Price excludes VAT (USA)

eBook: USD 54.99; Price excludes VAT (USA)

Softcover Book: USD 69.99; Price excludes VAT (USA)

Hardcover Book: USD 99.99; Price excludes VAT (USA)

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

1.
See Eurosif (2010, p. 16).
2.
See PRI (2012).
3.
See PRI (2011, p. 56). Based on a representative survey amongst asset owners that are also PRI signatories.
4.
See PRI (2012). Here we have applied the percentages of the PRI (2011) report on the current numbers of PRI signatories, as the 2012 disclosure on the asset split by investor type is not available to date.
5.
See Hockerts and Moir (2004).
6.
Scholtens and Sievänen (2012, p. 3).
7.
See Harjoto and Jo (2011).
8.
See for an actual analysis of drivers and impediments of SRI in pension funds Sievänen et al. (2012).
9.
See FNG (2013) and similar findings in Sievänen et al. (2012).
10.
See Union Investment (2011). Union Investment managed a detailed survey in 2011 that revealed the need for further empirical evidence, in particular for pension funds, for SRI-related topics.
11.
The empirical analyses are carried out in detail in Hertrich (2013).
12.
Based on a total AuM base of European pension funds of 4,170 billion euros for 2009, Dutch and UK pension funds obtain a total market share of 62.8 %. The German pension fund market, on the other hand, only represents 4.2 % of the overall market. See Eurosif (2011, p. 14).
In terms of relevance of the pension fund system in relation to the GDP of the respective country, the Netherlands are the undisputed leader within all OECD countries with a figure of 129.8 % of GDP. The UK, with 73.0 % of GDP, is also above the weighted average of 67.1 % of GDP. In Germany the asset base of domestic pension funds reaches a mere 5.2 % of GDP. See OECD (2010, p. 8).
13.
See Bundesministerium fuer Arbeit und Soziales (2008, p. 32).
14.
See Bundesministerium fuer Arbeit und Soziales (2008, p. 11, p. 22 and p. 32). Large corporations are defined as companies with more than 1,000 employees. For the current population, we have used the 2010 figure of 81.5 million inhabitants as reported by Statistisches Bundesamt (2011).
15.
See Rohde and Kuesters (2007, p. 18) et seq.
16.
See Doetsch et al. (2010, p. 15).
17.
Sec. 1 Par. 1 No. 3 BetrAVG regulates the subsidiary role of the employer.
18.
See Schwind (2011, p. 476).
19.
See Sec. 1b Par. 3 BetrAVG.
20.
See Sec. 118a VAG. Retirement is hereby understood as the ‘inability’ to continue with the work obligations due to reaching retirement age.
21.
See Doetsch et al. (2010, p. 20).
22.
See Braun (2010, p. 32).
23.
See BaFin (2012a).
24.
See BaFin (2012b, p. 3).
25.
See Bundesministerium fuer Arbeit und Soziales (2008, p. 110).
26.
See Frankfurter Allgemeine Zeitung (2005).
27.
See Statistisches Bundesamt (2007, p. 594).
28.
See Frankfurter Allgemeine Zeitung (2005).
29.
See BaFin (2011a).
30.
See BaFin (2011b).
31.
See Frere et al. (2009, p. 64).
32.
Bafin (2012c). Citation refers to Sec. 54 Par. 1 VAG.
33.
We will assume for the remainder of our research study that the European sovereign debt crisis unfolded in autumn 2009 when the Greek fiscal crisis became public. See Featherstone (2011, p. 194) et seq.
34.
See PRI (2012).
35.
See Schäfer (2005, p. 560).
36.
Bundesministerium fuer Umwelt, Naturschutz und Reaktorsicherheit, Fortis Investments (2008, p. 5).
37.
See, e.g. Bengtsson (2008b), Cox and Schneider (2010).
38.
See Sievänen et al. (2012).
39.
For more technical details see Hertrich (2013).
40.
In connection with this allocation into alternative investments, bonds investments, both corporate and government bonds, will decrease accordingly by 10 percentage points. The alternative asset allocation is thereby equally split between commodities and hedge fund assets.
41.
For comparison amongst investment funds, see Mallin et al. (1995), Gregory et al. (1997) for UK investment funds, Statman (2000) for US funds, Kreander et al. (2005) for European funds and Bauer et al. (2005) for an international mix. For pure SRI index performance studies, see Sauer (1997), Kurtz and diBartolomeo (1996) and Statman (2006).
42.
Both equities and corporate bond indices follow a best-in-class approach with a negative screening ex-AGTAFA. More details on the index methodologies can be found in STOXX (2012) for the Stoxx Europe Sustainability index and ECPI (2011) for the ECPI Corporate Bonds index.

References

BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht). (2011a). Anlageverordnung (AnlV)—Verordnung ueber die Anlage des gebundenen Vermoegens von Versicherungsunternehmen. Accessed March 27, 2013, from http://www.bafin.de/cln_117/nn_722564/DE/Unternehmen/VersichererPensionsfonds/Kapitalanlagen/kapitalanlagen __node.html?__nnn=true.
BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht). (2011b). Rundschreiben R4/2011 – Hinweise zur Anlage des gebundenen Vermoegens von Versicherungsunternehmen. Accessed March 28, 2013, from http://www.bafin.de/cln_117/nn_722564/DE/Unternemen/VersichererPensionsfonds/Kapitalanlagen/kapitalanlagen__node.html?__nnn=true.
BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht). (2012c). Investments. Accessed June 19, 2013, from http://www.bafin.de/EN/Supervision/InsuranceUndertakingsPensionFunds/Investments/investments_node.html.
BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht). (2012a). Liste der Pensionskassen mit Geschäftstätigkeit, homepage of the BaFin. Accessed June 11, 2013, from http://www.bafin.de/SharedDocs/Downloads/DE/Liste/Unternehmen/dl_li_vu_pensionskasse_mit_gesch.html?nn=2696686.
BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht). (2012b). Einzelangaben zu den Kapitalanlagen der Erstversicherungsunternehmen. Bestand in den einzelnen Versicherungssparten 4. Quartal 2011. Accessed June 10, 2013, from http://www.bafin.de/SharedDocs/Downloads/DE/Statistik/2011/dl_kapitalanlagen_4q_11_va.pdf?__blob=publicationFile&v=2.
Bauer, R., Koedijk, K., & Otten, R. (2005). International evidence on ethical mutual fund performance and investment style. Journal of Banking and Finance, 29, 1751–1767.
Article Google Scholar
Bengtsson, E. (2008). A history of Scandinavian socially responsible investing. Journal of Business Ethics, 82, 969–983.
Article Google Scholar
Braun, M. (2010). Betriebliche Alterssicherung im Spannungsfeld von betrieblicher Altersversorgung und betrieblicher Altersvorsorge, Aachen (Dissertation admitted at the University of Bayreuth, 2009).
Google Scholar
Bundesministerium fuer Arbeit und Soziales. (2008). Situation und Entwicklung der betrieblichen Altersversorgung in Privatwirtschaft und öffentlichem Dienst 2001–2007. Survey conducted by TNS Infratest Sozialforschung. Accessed August 04, 2013, from http://www.bmas.de/DE/Service/Publikationen/Forschungsberichte/Forschungsberichte-Rente/forschungsbericht-f384.html.
Bundesministerium fuer Umwelt, Naturschutz und Reaktorsicherheit and Fortis Investments. (2008). Occupational pensions and sustainable investments in Germany, Frankfurt. Accessed August 15, 2013, from http://www.sd-m.de/files/Hesse_Occupational_pensions_and_SRI_in_Germany.pdf.
Cox, P., & Schneider, M. (2010). Is corporate social performance a criterion in the overseas investment strategy of U.S. pension plans? An empirical examination. Business and Society, 49, 252–289.
Article Google Scholar
Doetsch, P., Hagemann, T, Oecking, S., & Reichenbach, R. (2010). Betriebliche Altersversorgung (3rd ed.). Freiburg.
Google Scholar
ECPI. (2011). ECPI euro bond index family. Accessed July 07, 2013, from http://www.ecpigroup.com/PDF_Indici/ECPI_Euro_Bond_INDEX_RULES.pdf
Eurosif (European Sustainable Investment Forum). (2010). European SRI study 2010. Accessed August 12, 2013, from http://www.eurosif.org/research/eurosif-sri-study/2010
Eurosif (European Sustainable Investment Forum). (2011). Corporate pension funds & sustainable investment study. Accessed May, 04, 2013, from http://www.eurosif.org/research/corporate-pension-funds
Featherstone, K. (2011). The Greek sovereign debt crisis and EMU: A failing state in a skewed regime. Journal of Common Market Studies, 49(2), 193–217.
Article Google Scholar
FNG. (2013). Marktbericht Nachhaltige Geldanlagen 2013. Deutschland, Oesterreich und die Schweiz. Accessed August 07, 2013, from http://www.forum-ng.org/images/stories/Publikationen/fng_marktbericht_2013_72dpi.pdf.
Frankfurter Allgemeine Zeitung. (2005). Deutschland rueckt ab vom Glauben an die staatliche Rente. In: Frankfurter Allgemeine Zeitung, 04-May-2005, no. 103, section ‚Wirtschaft’, p. 24.
Google Scholar
Frere, E., Reuse, S., & Schmitt, S. (2009). Asset liability management bei Pensionskassen—Einfluss aktueller Problemstellungen und Auswahl von geeigneten Assetklassen. Finanz Betrieb, 2, 62–73.
Google Scholar
Gregory, A., Matatko, J., & Luther, R. (1997). Ethical unit trust financial performance: Small company effects and fund size effects. Journal of Business Finance and Accounting, 24(5), 705–725.
Article Google Scholar
Harjoto, M. A., & Jo, H. (2011). Corporate governance and CSR nexus. Journal of Business Ethics, 100, 45–67.
Article Google Scholar
Hertrich, C. (2013). Asset allocation considerations for pension insurance funds, Berlin (Dissertation admitted at the University of Stuttgart, 2013).
Google Scholar
Hockerts, K., & Moir, L. (2004). Communicating corporate responsibility to investors: The changing role of the investor relations function. Journal of Business Ethics, 52, 85–98.
Article Google Scholar
Kreander, N., Gray, R., Power, D., & Sinclair, C. (2005). Evaluating the performance of ethical and non-ethical funds: A matched pair analysis. Journal of Business Finance and Accounting, 32(7), 1465–1493.
Article Google Scholar
Kurtz, L., & diBartolomeo, D. (1996). Socially screened portfolios: An attribution analysis of relative performance. The Journal of Investing, 5(3), 35–41.
Article Google Scholar
Mallin, C., Saadouni, B., & Briston, R. (1995). The financial performance of ethical investment funds. Journal of Business Finance and Accounting, 22(4), 483–496.
Article Google Scholar
OECD. (2010). Pension markets in focus. Accessed April 18, 2013, from http://www.oecd.org/dataoecd/46/46/45637367.pdf.
PRI (Principles for Responsible Investment). (2011). 5 years of SRI—report on progress 2011. An analysis of signatory progress and guidance on implementation. Accessed May 20, 2013, from http://www.unpri.org/publications/2011_report_on_progress_low_res.pdf.
PRI (Principles for Responsible Investment). (2012). Signatories to the principles for responsible investment. Accessed June 25, 2013, from http://www.unpri.org/signatories/.
Rohde, W. G., & Kuesters, S. (2007). Betriebliche Altersvorsorge (2nd ed.). Berlin.
Google Scholar
Sauer, D. (1997). The impact of social-responsibility screens on investment performance: Evidence from the domini 400 social index and domini equity mutual fund. Review of Financial Economics, 6(2), 137–149.
Article Google Scholar
Schäfer, H. (2005). Wie nachhaltig ist die Geldanlage in Deutschland? In: Zeitschrift fuer das gesamte Kreditwesen (pp. 16–20).
Google Scholar
Scholtens, B., & Sievänen, R. (2012). Drivers of socially responsible investing: A case study of four nordic countries. Journal of Business Ethics, 115(3), 605–616.
Article Google Scholar
Schwind, J. (2011). Die Deckungsmittel der betrieblichen Alterversorgung 2009. Betriebliche Alterversorgung, 5, 476–477.
Google Scholar
Sievänen, R., Rita, H., & Scholtens, B. (2012). The drivers of responsible investment: The case of European pension funds. Journal of Business Ethics, 117(1), 137–151. doi:10.1007/s10551-012-1514-0.
Article Google Scholar
Statistisches Bundesamt. (2007). Einnahmen und Ausgaben von Rentner—und Pensionaershaushalten—Untersuchungen auf der Grundlage der Ergebnisse der Einkommens—und Verbrauchsstichprobe 2003, section Wirtschaft und Statistik, no. 6, Wiesbaden, 2007. Accessed February 06, 2013, from https://www.destatis.de/DE/Publikationen/WirtschaftStatistik/WirtschaftsrZeitbudget/EinnahmenAusgabenRentner.pdf.
Statistisches Bundesamt. (2011). Bevoelkerungsvorausberechnung-Entwicklung der Bevoelkerung in Deutschland bis 2060. Accessed March 14, 2013, from http://www.destatis.de/jetspeed/potal/cms/Sites/destatis/Internet/DE/Content/Statistiken/Bevoelkerung/Vorausberechnung/Bevoelkerung/Tabellen/Content50/Bevoelkerungsvorausberechnung,templateId=renderPrint.psml.
Statman, M. (2000). Socially responsible mutual funds. Financial Analysts Journal, 56(3), 30–39.
Article Google Scholar
Statman, M. (2006). Socially responsible indexes. The Journal of Portfolio Management, 32(3), 100–109.
Article Google Scholar
STOXX. (2012). STOXX equity index methodology guide. Accessed July 10, 2013, from http://www.stoxx.com/download/indces/rulebooks/stoxx_indexguide.pdf.
Union Investment. (2011). Institutionelle Anleger befuerworten nachhaltige Investments, news article published on the homepage of Union Investment on 03-Aug-2011. Accessed September 29, 2013, from http://unternehmen.union-invesment.de/Newsletter/Pressemitteilungen/9da644ee77900c22cf8def5f05c36e26.0.0/PM_20110801_Nachhaltigkeitsstudie_2011.pdf.

Download references

Author information

Authors and Affiliations

University of Stuttgart, Stuttgart, Germany
Christian Hertrich & Henry Schäfer

Authors

Christian Hertrich
View author publications
You can also search for this author in PubMed Google Scholar
Henry Schäfer
View author publications
You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Henry Schäfer .

Editor information

Editors and Affiliations

Responsible Investmentbanking, Groebenzell, Germany
Karen Wendt

Rights and permissions

Reprints and permissions

Copyright information

About this chapter

Cite this chapter

Hertrich, C., Schäfer, H. (2015). More Fun at Lower Risk: New Opportunities for PRI-Related Asset Management of German Pension Insurance Funds. In: Wendt, K. (eds) Responsible Investment Banking. CSR, Sustainability, Ethics & Governance. Springer, Cham. https://doi.org/10.1007/978-3-319-10311-2_10

Download citation

DOI: https://doi.org/10.1007/978-3-319-10311-2_10
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-10310-5
Online ISBN: 978-3-319-10311-2
eBook Packages: Business and EconomicsEconomics and Finance (R0)

Publish with us

Policies and ethics