HOW WE INVEST

The German Act on the Nuclear Waste Management Fund forms the statutory framework for the assets in which KENFO can invest. The investment guidelines issued by the Federal Ministry of Finance on 27 June 2017 comprises fundamental investment regulations for investments and the assets that can be acquired. In accordance with these regulations, the general principles for investment for insurance companies must be observed when making investment decisions (section 124 (1) of the Versicherungsaufsichtsgesetz (German Insurance Supervision Act)) . With regard to the permitted asset classes, the investment universe is based on Section 215 (2) of the Versicherungsaufsichtsgesetz. The essential provisions of Section 4 of the Pension Fund Supervision Ordinance and the BMF letter dated 20 August 2019, the "Recommendation for minimum requirements for financial investment management by federal institutions" also apply. KENFO is therefore obliged to provide the highest possible level of security and profitability with liquidity of the facility at all times, while maintaining an appropriate blend and diversification of investments.

The core of KENFO's investment activity is determining a strategic asset allocation (SAA), which defines the key strategic components of portfolio construction and therefore the drivers of returns and risks regarding investments. The SAA is based on a long-term assessment of the markets, taking into account the investment objectives, risk tolerance, regulatory framework and balance sheet requirements of KENFO.
    
With regard to the investment of assets, both long-term liabilities and assets are key considerations for determining the investment strategy (which is adjusted on an on-going basis). The key objective is for the fund to maintain sufficient capital even during critical market conditions in order to be able to cover the financing of the estimated future disposal costs over the next 80 years.

The strategic asset allocation comprises of the following of the following investment categories particularly differing with regard to risk and their tradability (liquidity):

•    Liquid investments consisting of broadly diversified securities to be invested worldwide and traded on organized markets, it serves to generate an additional return under risk.

•    Illiquid investments consisting of broadly diversified, worldwide investments that are not traded on organized markets, such as corporate investments and loans, real estate or infrastructure projects, these serve to generate an additional return under risk.

KENFO's globally invested portfolio includes numerous asset classes, investment styles, regions and industries.

The assets are mainly managed within a special fund by a master investment fund management company. This company performs inventory management, processing and booking of securities transactions, the valuation of assets and the reporting of all individual positions in the portfolio in particular. 

External asset management companies are entrusted with the management of the assets. An efficient process for the selection of managers is crucial in order to select qualified managers who are capable to execute KENFO's asset management policies. The selection and regular monitoring of managers form essential parts of the implementation of a comprehensive investment strategy. The affiliated asset management companies and their capacities (systems, databases, licenses) and competencies (sustainability teams) ensure that KENFO has the highest possible quality of investments.

KENFO is responsible for the compliance of external asset managers with the investment guidelines. KENFO must therefore perform its control function over the plants and asset managers in a wide variety of different ways. This includes compliance with investment objectives, sustainability criteria and risk aspects. The decentralized integration of numerous ESG data providers/ratings agencies in accordance with the KENFO guidelines guarantees a sustainable investment universe, with the sustainability approach being strictly implemented.

Based on the legal requirements, a strategic investment framework and a target allocation structure that is phased over time, with tactical bandwidths, has been developed, which diversifies the timing and also the asset classes. The strategic allocation framework determines the bandwidths within which KENFO may invest in the individual investment categories, such as equities or fixed-interest bonds, as defined in an overriding investment strategy. 

The strategic direction is regularly re-examined. The investment horizon extends until the end of the century, with annual payments to finance disposal costs.