Germany’s largest public pension group, Bayerische Versorgungskammer (BVK), has confirmed that it faces a potential additional loss risk of up to €690m from a small number of US real estate investments, prompting the group to take what it described as “comprehensive action”.

The potential further losses relate to higher-risk development and refurbishment projects in the United States and would equate to around 0.6 per cent of BVK’s total investment portfolio, the pension group said.

BVK stressed that the exposure remains manageable within the context of its overall portfolio and that pension commitments to members and beneficiaries are not affected.

The group said its response is focused on further optimising the investment, risk management and compliance processes already in place, alongside strengthening trust-based communication with the committees of the pension funds it represents.

BVK CEO, Axel Uttenreuther, said the responsible management of those insured and member contributions is its “top priority”.

"We regret that losses have been incurred in the real estate business in the United States. At the same time, it is important to note that these losses are offset by the good results from other asset classes in line with our diversification strategy.

“So far, there has been no impact on the pension commitments for our 2.7 million members, insured persons and beneficiaries. And the same applies for the future: the pension provision for our insured persons is secure."

The group underlined that the losses have not affected overall performance. In 2024, BVK reported a capital-weighted net return of around 3.4 per cent, meeting its central investment target and exceeding the minimum returns required by the pension schemes it manages.

The solid result reflects strong performance across other asset classes, offsetting pressure in parts of its US real estate portfolio. Those exposures relate primarily to a small number of higher-risk development and refurbishment projects in the United States.

BVK has previously disclosed investments in three development projects and one refurbishment, including the Transamerica Pyramid in San Francisco, with a total investment volume of around €820m. In addition, the group holds three existing US properties, representing a further €770m of invested capital.

Overall, BVK’s equity exposure to US real estate investments with Deutsche Finance and SHVO amounts to approximately €1.6bn, equivalent to less than 1.4 per cent of the total portfolio at the end of 2024.

For the development and refurbishment projects, BVK confirmed that value adjustments of around €163m were recognised at the target fund level in the 2024 financial year, as previously announced.

BVK said it is taking all possible steps to limit these risks. No comparable risk has been identified for the three existing US properties, although the pension group cautioned that temporary accounting-related valuation adjustments cannot be ruled out. It stressed that such adjustments should not be interpreted as realised losses.

As part of its response, BVK has set out a series of measures aimed at strengthening oversight, governance and risk controls across its real estate activities.

For a transitional period, the pension group will appoint an external manager with industry experience to lead its real estate capital investment division. The manager will independently review existing processes and implement improvements where necessary, supported by established consulting and auditing firms.

BVK is also tightening its standards for cooperation with external partners, with the aim of going beyond minimum legal requirements where possible. The group has already introduced an independent, mandatory Know Your Customer (KYC) process, subjecting key business partners to additional quality and due diligence checks.

In parallel, BVK will further strengthen its compliance organisation in the coming months. While comprehensive compliance rules are already in place, the group said it will commission external experts to examine how the identified compliance breaches occurred and will enhance its early-warning compliance systems.

Finally, BVK said it will intensify communication with the committees of the pension institutions it represents, underlining that transparent, trust-based dialogue remains a core element of its governance approach.

The group said it will work intensively in the coming weeks and months to implement the measures as quickly as possible.

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