Capital investment: How pension funds waste money on retirement provision

What do lawyers from Hesse have to do with the Transamerica Pyramid office tower in San Francisco? Unfortunately, a lot. The Hessian Lawyers' Pension Scheme has contributed financially to the renovation of the property. This investment was a failure; around 58 million euros had to be written off. One reason for the flop was the consequences of the corona pandemic: rising construction costs, disrupted supply chains.

The pension fund itself puts the investment flop into perspective. The depreciation of the real estate investment affects less than one percent of the total investment capital, according to the statement. The benefits promised by the pension fund for its members - both entitlements and current pensions - remained unchanged.

Professional pension funds should invest their members' funds safely. The pensions they pay out replace the statutory pension for many self-employed people such as doctors, lawyers, architects or notaries. The pension funds in Germany currently have 1.2 million members and manage around 300 billion euros in investment capital.

Sometimes the pension funds overspend on their investments - to the point of total loss. For the almost 26,000 Hessian lawyers, the US real estate adventure ended lightly. However, with other pension funds, bad investments tear deep holes in your own finances.

The Berlin dentists' pension fund, for example, had to write off more than a billion euros. That's at least a good half of the total capital. One reason for this was failed investments in luxury hotels and shrimp farming. The 11,000 members of the pension fund are now threatened with pension cuts of several hundred euros per month.

The Berlin case is spectacular, but far from unique. The analysis firm Metzler Ratings has collected and analyzed a large number of pension fund investment flops. A large proportion of the failures were real estate projects, which, among other things, suffered from rising interest rates.

Certain controversial investments appear in the portfolios of many pension funds. These include, among others, the Verius financing funds for real estate projects. According to Metzler, around 50 pension funds and church districts have invested in these funds. The fund has now been dissolved. Consequence: millions in losses for investors.

Managing director Marcus Metzler criticizes the lack of transparency in capital investments. Of the 92 pension funds, 76 did not fully disclose their annual reports. There is currently no legal disclosure requirement for them. “Anyone who manages mandatory contributions must be at least as transparent as a pension fund,” says Metzler. He calls for a uniform catalog of key figures for all pension funds.

Other critics complain that there is a lack of capital market expertise, especially among smaller pension funds. The decisive committees are often made up exclusively of members who have no banking or stock exchange experience. It is all the more astonishing that many pension funds invest in capital investments that are also demanding for professionals. These include subordinated loans, private equity, hedge funds or silent partnerships.

In addition, there are sometimes personal connections between the providers of capital investments and the board of directors of the pension funds. These networks are often not questioned internally. This means that the selection of investments can then be neither independent nor return-oriented.

There were also conflicts of interest in the Berlin dentists' pension fund. The director of the pension fund, who has since been terminated, was also represented on the committees of some investment companies. The Berlin labor court ruled that termination was permissible due to the conflict of interest. The verdict is not yet final.

There were compliance violations in real estate investments at the public Bavarian Supply Chamber (BVK), which were confirmed by the BVK in 2025. External auditors had found that the decision-makers were too close to the real estate investment providers.

The BVK's real estate investment manager at the time had to leave afterwards. In March, the Munich Labor Court overturned the dismissal without notice for formal reasons because a certain deadline was not met. However, the court had not decided on the compliance violations.

Like the Hessian lawyers' pension scheme, BVK was invested in the Transamerica Pyramid renovation project. Because of this investment, it has had to make value adjustments of around 160 million euros so far. Because of these and other troubled real estate investments, BVK has temporarily commissioned an external manager to manage the real estate portfolio.

The Transamerica Pyramid property is currently owned by the real estate developer SHVO. Last December, the company founded by Michael Shvo announced that 85 percent of the office space in the building was leased. SHVO is primarily a specialist in luxury real estate.