Key Takeaways
- • Munich prosecutors searched the offices of BVK, Germany's largest public-sector pension group, on Thursday, two days after raiding asset manager Deutsche Finance Group, in a corruption probe tied to loss-making US real estate deals.
- • The investigation targets a former and a current BVK employee who handled property investments, plus a member of Deutsche Finance's management; prosecutors suspect improper influence over real estate decisions and additional capital approvals.
- • BVK said it could write off as much as €853 million ($957.4 million) of roughly €1.6 billion ($1.8 billion) invested in seven US projects, with €392 million ($440.0 million) already recorded by the end of last year.
- • Neither SHVO nor its owner Michael Shvo has been accused of wrongdoing, and neither was named in prosecutors' statements.
- • The case has intensified scrutiny of governance at Germany's vocational pension funds, a segment managing about €300 billion in savings.
Summary
Munich prosecutors searched the offices of BVK, Germany's largest public-sector pension group, on Thursday, widening a corruption investigation into loss-making US real estate deals that has already produced steep losses for the Bavarian fund. According to a statement from the Munich prosecutor's office, the raid followed a search two days earlier of the headquarters of asset manager Deutsche Finance Group. Three private apartments in and around Munich were also searched. A Munich prosecutors spokesperson confirmed the searches but declined to specify the focus of the investigation, saying more details would be disclosed in a few days.
The investigation targets a former and a current BVK employee who handled property investments, along with a member of Deutsche Finance's management. Prosecutors suspect the BVK employee improperly influenced the fund's real estate decisions and its approvals of additional capital to keep struggling projects afloat. In exchange, the employee allegedly accepted benefits for himself and others, including dinners at high-end restaurants in Munich, London, Los Angeles and New York, and stays in a luxury hotel suite in New York.
The probe centers on seven real estate projects in New York, Miami Beach, Beverly Hills, Chicago and San Francisco carried out with Deutsche Finance's involvement, which prosecutors describe as loss-making. BVK's US holdings have included the Transamerica Pyramid in San Francisco, 9200 Wilshire Blvd in Los Angeles, 685 Fifth Ave and 711 Fifth Ave in New York, the Raleigh in Miami, 530 Broadway in New York and 333 South Wabash in Chicago, according to the fund's website. BVK manages roughly €122 billion ($136.9 billion) in retirement assets for 2.8 million people in Bavaria. The fund has said it could write off as much as €853 million of the approximately €1.6 billion it invested in the properties, with €392 million already recorded by the end of last year. BVK declined to comment.
Deutsche Finance confirmed the search of its offices and said it is cooperating, noting it has been in contact with authorities for some time and was searched as a third party. In a January statement, the firm said none of its affiliates had discretionary authority over the selection or execution of the investments, and that its US subsidiary's role was limited to structuring, coordinating and regulatory functions. The developer linked to several of the properties, SHVO, has said the buildings are outperforming the market with record rents from blue-chip tenants; SHVO did not immediately respond to a request for comment.
The case has intensified questions about governance at Germany's vocational pension funds, a segment managing about €300 billion in savings. Such funds are often overseen by boards with limited investing experience and fragmented supervision, and several emerged as backers of US and other real estate developments that ran into trouble once interest rates began rising. Two senior BVK managers left their roles earlier this year after an internal review found compliance violations, including lavish business trips by one employee.
The investigation targets a former and a current BVK employee who handled property investments, along with a member of Deutsche Finance's management. Prosecutors suspect the BVK employee improperly influenced the fund's real estate decisions and its approvals of additional capital to keep struggling projects afloat. In exchange, the employee allegedly accepted benefits for himself and others, including dinners at high-end restaurants in Munich, London, Los Angeles and New York, and stays in a luxury hotel suite in New York.
The probe centers on seven real estate projects in New York, Miami Beach, Beverly Hills, Chicago and San Francisco carried out with Deutsche Finance's involvement, which prosecutors describe as loss-making. BVK's US holdings have included the Transamerica Pyramid in San Francisco, 9200 Wilshire Blvd in Los Angeles, 685 Fifth Ave and 711 Fifth Ave in New York, the Raleigh in Miami, 530 Broadway in New York and 333 South Wabash in Chicago, according to the fund's website. BVK manages roughly €122 billion ($136.9 billion) in retirement assets for 2.8 million people in Bavaria. The fund has said it could write off as much as €853 million of the approximately €1.6 billion it invested in the properties, with €392 million already recorded by the end of last year. BVK declined to comment.
Deutsche Finance confirmed the search of its offices and said it is cooperating, noting it has been in contact with authorities for some time and was searched as a third party. In a January statement, the firm said none of its affiliates had discretionary authority over the selection or execution of the investments, and that its US subsidiary's role was limited to structuring, coordinating and regulatory functions. The developer linked to several of the properties, SHVO, has said the buildings are outperforming the market with record rents from blue-chip tenants; SHVO did not immediately respond to a request for comment.
The case has intensified questions about governance at Germany's vocational pension funds, a segment managing about €300 billion in savings. Such funds are often overseen by boards with limited investing experience and fragmented supervision, and several emerged as backers of US and other real estate developments that ran into trouble once interest rates began rising. Two senior BVK managers left their roles earlier this year after an internal review found compliance violations, including lavish business trips by one employee.
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