Submitted by Thomas Kolbe,
A shock for the insured members of the Versorgungswerk Zahnärzte Berlin-Brandenburg (VZB). According to a report this week by Bloomberg, losses at the private pension fund total €1.1 billion. Roughly 50 percent of its invested capital has effectively been wiped out—channeled into private loans to non-listed companies, including rPlanet Earth in California, a shrimp farm in northern Germany, and, repeatedly featured on the investment menus of German pension funds, U.S. commercial real estate.
The auditors, advisors, and executives involved now face what may become a legal marathon. Much suggests that VZB ventured well beyond the traditional risk framework that would normally be considered prudent for a professional pension institution.
A similar fate befell the Bayerische Versorgungskammer (BVK). Last year it recorded accounting losses of up to €853 million. Once again, U.S. commercial real estate exposures were at the center of the turbulence, including properties such as the Transamerica Building in San Francisco—an internationally recognized problem asset.
Unlike VZB, however, BVK has substantial financial reserves. The assets it manages still total around €170 billion. On this robust capital base, it secures retirement benefits for physicians, lawyers, and numerous other professional groups.
The Bloomberg report further lists additional pension schemes displaying a similar pattern: recurring write-downs in the U.S. commercial real estate segment. Among the affected institutions are the Kirchliche Zusatzversorgungskasse des Verbandes der Diözesen Deutschlands (KZVK), the BASF Pensionskasse, the Telekom Pensionskasse, and the Apotheker- und Zahnärztefonds Schleswig-Holstein.
Nationwide, at least 18 pension institutions have taken unscheduled write-downs totaling more than €2 billion on commercial real estate investments since 2020. The system is under pressure—but it is not yet tottering. German pension funds collectively manage around €300 billion in assets. Nevertheless, pressure on asset managers to recalibrate risk profiles to a changed interest-rate and market environment is likely to intensify in the coming years. But where can reliable returns still be found when the classic portfolio mix of safe sovereign bonds—upon which entire pension systems were built over decades—appears to belong to the past?
Few will be able to avoid adding equity risk going forward. Allocations to precious metals—and possibly to Bitcoin, the so-called digital gold—as assets without traditional third-party risk appear to be a logical option. Equity stakes in the energy sector are also likely to gain significantly in attractiveness. In particular, the economic superpowers U.S. and China are on the verge of a massive AI and nuclear power boom, developments that are likely to be reflected in capital markets.
Yet many portfolio managers have remained anchored to the old worldview: sovereign bonds and commercial real estate—precisely those segments that, against the backdrop of high public debt and negative demographic trends, are increasingly losing structural stability and thus implying growing downside risk—remain dominant building blocks of portfolio strategy.
This traditional portfolio approach promised stable income and attractive yields. What was overlooked, however, is that structural shifts have fundamentally altered the underlying data: the rise of remote work, sweeping restructuring within the American economy, and the accelerating deployment of artificial intelligence have significantly reduced demand for conventional office space. What was intended as yield-enhancing diversification has, in many cases, turned into concentrated risk—with substantial consequences for the stability of the affected pension institutions.
Mounting pressure under expansionary monetary policy led to a gradual shift away from the liquid, stable-yielding, long-term sovereign bonds that had proven themselves over decades, toward higher-yielding but significantly more illiquid asset classes. Many asset managers tilted portfolios toward private debt, real assets, and promissory note loans backed by real estate covenants—extending even into high-risk mezzanine financing for non-listed, speculative projects.
The sharp interest-rate hikes that followed years of monetary expansion in 2022 hit the real estate sector with full force. Insolvencies increased, default risks slipped beyond the effective control of auditors, while asset managers responded to monetary volatility and swelling public debt by assuming ever greater risks.
The combination of prolonged ultra-low rates followed by abrupt tightening has exposed the weaknesses of many investment strategies.
The deep cracks now visible in the financial architecture of German pension funds are systemic. Years of low-rate policy aimed at financing highly deficit-ridden state budgets, along with the economic damage inflicted by lockdowns during the Covid years, have dramatically increased pressure on both investors and pension portfolio managers. In essence, we have been living under this policy regime since the great debt crisis a decade and a half ago.
Pension liabilities require a minimum return on invested capital. The crisis in bond markets is pushing investor strategies further along the risk curve into asset classes that traditionally did not appear on the radar of these institutions’ portfolio managers. Put differently: high volatility and the selloff at the long end of top-rated sovereign bonds reflect a fundamental reassessment of inflation and debt risks currently underway in government bond markets. The fiat credit-money system is entering a particularly volatile phase.
How private pension funds and insurance systems will ultimately be financed and backstopped remains unclear. Will state guarantee funds step in if losses escalate into systemic risk and entire institutions begin to wobble?
Experience from the rescue practices during the great financial crisis suggests that governments may once again act in line with the protective umbrella strategy associated with former German Chancellor Angela Merkel. That would mean placing large bond issues on the market, underwritten by the European Central Bank, to secure payment flows and obligations of affected institutions. Market distortion follows market distortion—an intervention spiral designed to stabilize the financial structure in the short term, yet failing to resolve underlying problems and sending fatal signals for further misallocation of capital.
For individual investors, it is crucial to recognize that many central banks have gradually reduced their bond holdings after years of large-scale asset purchases.
The fact that major central banks—such as China’s—are increasingly backing their balance sheets with structurally expanded gold reserves is a clear warning signal.
How stable is our banking system, really? How large are the third-party risks hidden in balance sheets? And how liquid will bond markets remain in the coming years if even formerly fiscally reliable states like Germany issue hundreds of billions of euros in new debt?
The fact that numerous states worldwide have begun expanding strategic energy and commodity reserves is another strong signal. It suggests that future currency systems may, sooner than expected, once again become more tightly linked to real scarcities—whether precious metals, energy, or broad commodity baskets.
The era of unbacked fiat credit money, at least in its current form, is gradually drawing to a close. German pension funds must incorporate this reality into their calculations—sooner rather than later.
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About the author: Thomas Kolbe, a German graduate economist, has worked for over 25 years as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.
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