MUNICH: Asset manager Deutsche Finance has been raided, escalating scrutiny on US property investments that spurred losses for one Germany’s largest pension funds.
Munich prosecutors searched the offices of Deutsche Finance on Tuesday in connection with US real estate investments carried out by German pension fund group BVK, the asset manager confirmed to Bloomberg.
Deutsche Finance is cooperating and has been in contact with the authorities for quite some time, it said, adding it was searched as a “third party”.
BVK’s US property investments have become a matter of public scrutiny in Germany as the group has flagged big losses on a chunk of US properties that it links to Deutsche Finance and the real estate development firm SHVO, owned by New York developer Michael Shvo.
BVK oversees 122bil (US$141.5bil) in retirement assets for 2.8 million people in Bavaria, from doctors and lawyers to stage workers and chimney sweeps, making it Germany’s largest public-sector pension group.
BVK has previously said that it may end up writing off as much as 853mil of the roughly 1.6bil it has invested in those properties, with 392mil of that having already happened by the end of last year.
The German prosecutors or Deutsche Finance didn’t mention Shvo or his firm in their communications on Tuesday and neither of them has been accused of any wrongdoing.
Deutsche Finance said in a January statement that none of its affiliates had “discretionary decision-making authority with respect to the selection or execution of the investments” and that the role of its US subsidiary was limited to “structuring, coordinating and regulatory functions”.
SHVO said earlier this year that the properties are “demonstrably outperforming the market by achieving record rents with blue-chip tenants”.
It also said previously that the “properties’ ongoing financial performance cannot accurately be described as anything other than success.”
BVK declined to comment now and SHVO didn’t immediately respond to a request for comment.
The matter has added to searching questions about oversight and governance at Germany’s vocational pension funds, an industry that’s a crucial part of the country’s retirement infrastructure and manages about 300bil in savings.
Often overseen by people with little investing background who work under sometimes fragmented supervision, several of these funds have popped up as backers of real estate developments and other investments – including in the United States – that started ailing when interest rates began to increase.
Two senior BVK managers have left their roles after an internal probe found compliance violations at the pension group, including lavish business trips by one of the employees, Bloomberg News reported in February.
Süddeutsche Zeitung reported on Wednesday that the probe is looking into allegations over potential bribery through trips and other amenities.
A spokesperson for Munich prosecutors confirmed the searches but declined to say what their probe was focused on nor elaborate on their investigation.
The agency will disclose more details “in a few days”, the spokesperson further added.
BVK’s investments in US properties have included the Transamerica Pyramid in San Francisco, 9200 Wilshire Blvd in Los Angeles, 685 Fifth Ave in New York, and the Raleigh in Miami, according to the fund group’s website.
They have also included 711 Fifth Ave. and 530 Broadway in New York and 333 South Wabash in Chicago. — Bloomberg
