Key Takeaways
- • Munich prosecutors raided Deutsche Finance on Tuesday as part of a criminal investigation into US real estate investments that produced substantial losses for BVK, Germany's largest public-sector pension fund.
- • BVK, which oversees €122 billion in retirement assets, has flagged potential write-offs of up to €853 million on US properties linked to Deutsche Finance and New York developer Michael Shvo's firm SHVO.
- • BVK invested roughly €1.6 billion in a portfolio of US trophy assets and had already written off €392 million by the end of last year.
- • Süddeutsche Zeitung reports the probe centers on allegations of bribery through trips and amenities; prosecutors have not accused Shvo or SHVO of wrongdoing.
- • Two senior BVK managers departed after an internal investigation found compliance violations, raising governance concerns across Germany's roughly €300 billion vocational pension sector.
Summary
Munich prosecutors raided Deutsche Finance on Tuesday as part of an investigation into US real estate investments that produced substantial losses for BVK, Germany's largest public-sector pension fund, according to Bloomberg. BVK oversees €122 billion in retirement assets for 2.8 million Bavarians and has flagged potential write-offs of as much as €853 million on US properties linked to Deutsche Finance and SHVO, the firm led by New York developer Michael Shvo. Deutsche Finance confirmed the search and said it is cooperating as a third party, while prosecutors declined to specify the focus of their probe. Süddeutsche Zeitung reported that the investigation centers on allegations of bribery through trips and amenities.
BVK invested roughly €1.6 billion in a portfolio of US trophy assets, including the Transamerica Pyramid in San Francisco, 685 Fifth Avenue and 711 Fifth Avenue in New York, 9200 Wilshire Boulevard in Los Angeles, and 333 South Wabash in Chicago. By the end of last year, the pension group had already written off €392 million of those investments. SHVO said earlier this year that the properties are outperforming the market with record rents and blue-chip tenants, while Deutsche Finance said in January that its US subsidiary had no discretionary authority over investment selection or execution.
Two senior BVK managers departed after an internal investigation found compliance violations, including lavish business trips. German prosecutors have not accused Shvo or his firm of wrongdoing, and neither Deutsche Finance nor the prosecutors mentioned SHVO in their Tuesday communications. The Munich prosecutors' office said it will release additional details in the coming days.
The case has intensified scrutiny of governance across Germany's vocational pension fund industry, which manages roughly €300 billion in retirement savings and operates under fragmented supervision, often overseen by people with limited investing experience. Several German vocational pension funds have surfaced as backers of US real estate developments and other investments that faltered when interest rates rose.
BVK invested roughly €1.6 billion in a portfolio of US trophy assets, including the Transamerica Pyramid in San Francisco, 685 Fifth Avenue and 711 Fifth Avenue in New York, 9200 Wilshire Boulevard in Los Angeles, and 333 South Wabash in Chicago. By the end of last year, the pension group had already written off €392 million of those investments. SHVO said earlier this year that the properties are outperforming the market with record rents and blue-chip tenants, while Deutsche Finance said in January that its US subsidiary had no discretionary authority over investment selection or execution.
Two senior BVK managers departed after an internal investigation found compliance violations, including lavish business trips. German prosecutors have not accused Shvo or his firm of wrongdoing, and neither Deutsche Finance nor the prosecutors mentioned SHVO in their Tuesday communications. The Munich prosecutors' office said it will release additional details in the coming days.
The case has intensified scrutiny of governance across Germany's vocational pension fund industry, which manages roughly €300 billion in retirement savings and operates under fragmented supervision, often overseen by people with limited investing experience. Several German vocational pension funds have surfaced as backers of US real estate developments and other investments that faltered when interest rates rose.
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