Germany’s Wealth Fund to Go Where Even Norway Fears to Tread

(Bloomberg) -- Germany’s little-known sovereign wealth fund is about to become a lot bolder in its investments than its much larger Norwegian counterpart.

Kenfo, as the 24 billion-euro ($27 billion) fund is known, will start investing around 30% of its money in unlisted assets after mainly buying stocks and bonds in the past. “We will probably be subscribing to the first private equity fund shares by the end of the year,” Chief Executive Officer Anja Mikus said in an interview. She aims to invest worldwide in her quest to generate maximum returns and will look at real estate, infrastructure and private debt next.

Norway’s $1.1 trillion sovereign wealth fund, the world’s largest, also has permission to put money into real estate and infrastructure, though it’s only targeting a total allocation of 6% for these two alternative asset classes. The fund, which mainly invests in stocks and bonds, has so far failed to gain approval for a request to buy stakes in unlisted companies. It has proposed a potential limit of just 1% of its portfolio.

Low interest rates have prompted many institutional investors to seek higher returns by investing in private equity and other alternative asset classes.

Kenfo relies on a steady stream of income over an extended period of time. It was founded two years ago to help with Germany’s exit from nuclear energy by financing interim and final storage of radioactive waste. So far, it has invested about 11 billion euros of its initial seed money of 24 billion euros, according to Mikus, who also sits on Commerzbank AG’s supervisory board. The lender counts the German government among its shareholders.

The fund’s investments generated an average annual return of 7.5% between July 2017 and the end of September 2019, Mikus said.

“We have seen a particularly good performance in long-term corporate bonds and actively managed equity funds,” said Mikus, adding that investments follow certain environmental, social and governance principles. “For example, we do not invest in arms manufacturers and companies that violate human rights,” she said. Operators of nuclear power plants are also off-limits.

Kenfo, whose full name is Fonds zur Finanzierung der kerntechnischen Entsorgung, employs 20 people besides its board, of which nine work in investment and risk management. The fund has enlisted external managers for of its liquid investments. It awarded a total of 17 mandates of between 250 million euros and 1.8 billion euros each. According to Mikus, it is now also working with two external managers on selecting its future private equity investments.

--With assistance from Mikael Holter.

To contact the reporter on this story: Stephan Kahl in Frankfurt at skahl@bloomberg.net

To contact the editors responsible for this story: Daniel Schaefer at dschaefer36@bloomberg.net, Andrew Blackman

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