Dr. Christian Hertrich
Vice President at Goldman Sachs
University of Stuttgart – PhD (Dr.rer.pol), Finance, First
2010 – 2013
Research focus: Portfolio optimization, financial econometrics, derivatives
First-class honours with Distinction
University of Cambridge – Master, Finance
2009 – 2010
Focus: Equity derivatives, investment management, econometrics, fixed-income analysis
ESB Business School Reutlingen
BSc, European Business Administration
2001 – 2003
Focus: Corporate finance, accounting, international finance
Comillas Pontifical University
BSc, International Business Management (E-4)
1999 – 2001
For Germany, the German Forum for Responsible Investing (FNG) repeatedly unveils in its annual reports the continuous reluctance of German entities of the occupational pension system to integrate SRI into their portfolios. German pension funds and related entities are highly regulated and exhibit a high risk aversion that is, among others, best reflected in their asset allocation preferences towards fixed income bonds of reputable public issuers. Due to such an extraordinary institutional environment, many of the empirical work done by academics and practitioners in the field of SRI is focusing primarily on performance related issues (the so-called “under- or outperformance” question). Many pension fund managers nonetheless argue that purely performance related issues are not their main focus for the daily asset management business. Instead, they are faced with challenges to avoid short-fall risks and complain the lack of empirical research on SRI for such risk-related topics. It appears that the need for more risk related empirical evidence in the SRI context is for most of the German entities of the occupational pension system high relevant.
This chapter puts forward an excerpt of the main results of an up-to-date empirical work that has focused on the opportunities SRI-based asset allocation strategies offer to cope with investment risk. The work demonstrates that under the specific regulatory environment in Germany and considering the asset allocation
preferences of German Pension Insurance Funds, a short-fall risk approach can provide a suitable recommendation on how to structure a SRI portfolio to best benefit the fund and its beneficiaries.The chapter will first describe briefly the specific regulatory requirements of German Pension Insurance Funds as the most important type of the five layer system of Germany’s occupational pension system, followed by an explanation of how these investors approach SRI investing. Subsequently, there is a short summary of the methodology applied as well as the time series used, and, finally, a summary of the main empirical results and conclusions.
Apart from contemplating portfolios that adhere to prevailing market practice in terms of asset allocation as well as regulatory constraints for occupational pension schemes in Germany, we will also simulate portfolio compositions of pension funds in the UK as well as the Netherlands. Both countries play a leading role in European SRI investing for pension funds and have already obtained sizeable and relevant occupational pension systems.
 The empirical analyses are carried out in detail in Hertrich (2013).
 Based on a total AuM base of European pension funds of €4,170bln for 2009, Dutch and UK pension funds obtain a total market share of 62.8%. The German pension fund market, on the other hand, only represents 4.2% of the overall market. See Eurosif (2011), p. 14.
In terms of relevance of the pension fund system in relation to the GDP of the respective country, the Netherlands are the undisputed leader within all OECD countries with a figure of 129.8% of GDP. The UK, with 73.0% of GDP, is also above the weighted average of 67.1% of GDP. In Germany the asset base of domestic pension funds reaches a mere 5.2% of GDP. See OECD (2010), p. 8.
 See FNG (2013) and similar findings in Sievänen, Rita, Scholtens (2012).
 See Union Investment (2011). Union Investment managed a detailed survey in 2011 that revealed the need for further empirical evidence, in particular for pension funds, for SRI-related topics.