Investing into offshore hedge funds under German regulation (VAG) Martina Nitschke is Head of Investment Department at VGV – Verwaltungsgesellschaft für Versorgungswerke mbH, Berlin, which represents the interests of different professional pension funds in Eastern Germany and is responsible for the management of €16 billion in assets. She started with VGV mbH in 2003 and took over responsibility for the general capital allocation, and allocation to alternative investments, in 2018. The current alternative investment portfolio of VGV includes timber, infrastructure, private equity and offshore hedge funds. In her interview with Uwe Lill, Managing Director of GFD – Gesellschaft für Finanzkommunikation mbH, she discussed different aspects of offshore hedge fund allocation and how it could be done within the framework of the German Insurance Supervision Act (VAG).
“The conservative, partly negative stance of investors in Germany towards hedge funds due to regulatory restrictions
is not rational.” – MARTINA NITSCHKE
The current regulation allows pension funds and insurance companies in Germany to invest a maximum of 1% of their assets into a single hedge fund and 5% in fund of funds. Moreover, there are strict requirements regarding transparency, manager selection and the due diligence process, as well as risk management. The conservative, partly negative stance of investors in Germany towards hedge funds due to regulatory restrictions is not rational, according to Mrs. Nitschke. The so-called VAG-quota and hedge fund investment are fully compatible. Within the scope of VAG, a diversified investment in offshore hedge funds can be implemented efficiently. However, investors would need the help of legal and tax advisory, as well as a dedicated team to conduct due diligence on target funds, including economic, operational assessment and anti- money laundering scrutiny.
In her 20 years at VGV, Mrs. Nitschke has attempted to integrate hedge funds into her portfolio multiple times, both offshore and UCITS, but didn’t find noteworthy success. She and her investment team decided to give it another try, this time with the help of a professional hedge fund advisor. The attempt proved to be fruitful. Since inception in the middle in early 2021, the hedge fund allocation has delivered positive performance and has helped to stabilize the performance of the entire portfolio. Although the hedge fund allocation is not significant in a total portfolio context, the performance contribution is significant. According to Mrs. Nitschke the general alternative investment quota is expected to be further increased, including the hedge fund allocation. THFJ
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