Key Takeaways
- • Kenfo, Germany's €28bn sovereign wealth fund, will increase private markets allocation from 25% to 30% over the next two years, prioritizing infrastructure and real estate while reducing selective private equity commitments.
- • Private equity underperformance prompted the strategic shift; Verena Kempe, head of investment management, cited PE's failure to deliver anticipated returns in recent years, reflecting broader institutional caution amid higher interest rates and slower deal activity.
- • The fund reduced US Treasury holdings to €200m by end-2025 (down from €600m), then rebuilt the position by more than €500m by end-June 2026, demonstrating flexible macroeconomic positioning despite volatility.
- • Infrastructure and property portfolios will drive the private markets expansion rather than buyout fund exposure, signaling Kenfo's preference for yield-generating, inflation-resilient assets over leveraged equity strategies.
- • Kenfo's strategic pivot aligns with institutional investor trends questioning private equity's risk-return profile in an environment of elevated financing costs and uncertainty around AI's impact on software-focused portfolio companies.
Summary
Germany's sovereign wealth fund Kenfo is recalibrating its portfolio composition through a deliberate reallocation toward private markets while simultaneously de-emphasizing private equity exposure. The fund, which manages over €28bn and was established to secure Germany's long-term nuclear waste disposal liabilities, plans to increase its private markets allocation to 30% from the current 25% over a two-year horizon. Critically, this expansion will be achieved primarily through infrastructure and real estate investments rather than traditional buyout commitments, according to Kenfo's latest annual report cited by Bloomberg.
Verena Kempe, Kenfo's head of investment management, directly attributed the strategy adjustment to private equity's recent performance shortfall. Kempe stated that PE has not delivered the level of returns the fund anticipated in recent years, prompting adoption of a more selective investment approach. This assessment reflects a broader institutional reassessment of private equity valuations and returns. Higher interest rates have compressed deal multiples, reduced leveraged buyout activity, and intensified scrutiny of portfolio company fundamentals—particularly among software-focused holdings exposed to artificial intelligence disruption risks. Kempe's comments underscore how macro headwinds are compelling large institutional allocators to reconsider their private equity commitment levels.
Kenfo's infrastructure and real estate focus offers institutional investors a blueprint for navigating the current environment. These asset classes typically provide more stable cash flows, inflation hedges, and lower leverage than traditional PE, making them increasingly attractive to long-duration liability holders like pension funds and sovereign wealth vehicles. The fund's experience suggests that even sophisticated allocators with high PE allocations are willing to trade traditional equity upside for more resilient income characteristics.
Beyond private markets, Kenfo has demonstrated tactical agility in government bond positioning. The fund reduced US Treasury holdings to approximately €200m by end-2025, down sharply from €600m a year earlier, before rebuilding the position by more than €500m by end-June 2026. Chief executive Anja Mikus emphasized that US Treasuries remain strategically important due to relatively attractive yields versus other developed market sovereigns, and that the fund would continue managing this allocation flexibly. This pattern—tactical reduction followed by strategic rebuilding—suggests Kenfo is responding dynamically to yield curve shifts and funding rate conditions while maintaining meaningful duration exposure.
Verena Kempe, Kenfo's head of investment management, directly attributed the strategy adjustment to private equity's recent performance shortfall. Kempe stated that PE has not delivered the level of returns the fund anticipated in recent years, prompting adoption of a more selective investment approach. This assessment reflects a broader institutional reassessment of private equity valuations and returns. Higher interest rates have compressed deal multiples, reduced leveraged buyout activity, and intensified scrutiny of portfolio company fundamentals—particularly among software-focused holdings exposed to artificial intelligence disruption risks. Kempe's comments underscore how macro headwinds are compelling large institutional allocators to reconsider their private equity commitment levels.
Kenfo's infrastructure and real estate focus offers institutional investors a blueprint for navigating the current environment. These asset classes typically provide more stable cash flows, inflation hedges, and lower leverage than traditional PE, making them increasingly attractive to long-duration liability holders like pension funds and sovereign wealth vehicles. The fund's experience suggests that even sophisticated allocators with high PE allocations are willing to trade traditional equity upside for more resilient income characteristics.
Beyond private markets, Kenfo has demonstrated tactical agility in government bond positioning. The fund reduced US Treasury holdings to approximately €200m by end-2025, down sharply from €600m a year earlier, before rebuilding the position by more than €500m by end-June 2026. Chief executive Anja Mikus emphasized that US Treasuries remain strategically important due to relatively attractive yields versus other developed market sovereigns, and that the fund would continue managing this allocation flexibly. This pattern—tactical reduction followed by strategic rebuilding—suggests Kenfo is responding dynamically to yield curve shifts and funding rate conditions while maintaining meaningful duration exposure.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.