The region’s largest pension organization is at the center of a massive financial scandal involving adventurous investments in American skyscrapers. It has been revealed that the fund began urgently disposing of its overseas assets, but this sell-off only confirmed the catastrophic scale of the losses. We are talking about hundreds of millions of euros that literally dissolved in risky deals with dubious partners. While contributors question the safety of their savings, courtroom proceedings have unveiled details more reminiscent of a crime drama than the reports of a conservative financial institution.
Chronicle of a financial nosedive: from Manhattan to Chicago
The story of the failure began back in 2018 when BVK decided to aggressively enter the US luxury real estate market. In partnership with developer Michael Shvo, previously convicted of tax fraud, and the investment firm Deutsche Finance, the fund directed approximately 1.6 billion euros toward the purchase of prestigious properties in New York and Chicago. However, the strategy of prestigious facades turned into a financial trap. Currently, the organization has officially recognized a loss of 288 million euros, with another 565 million euros in a high-risk zone according to the fund’s own data. Effectively, supervisory authorities face a situation where about half of all funds invested in American projects could be irrevocably lost.
Today, the once-ambitious investment alliance is rapidly disintegrating. Former partners have rushed to distance themselves from one another, exchanging mutual accusations. While Deutsche Finance stated earlier this year that it was not the party making operational decisions in the deals, BVK representatives indicated that partners held significant decision-making rights. The fund claims it acted only as a shareholder that invested indirectly in a number of properties and suggested that detailed questions could only be clarified by the participating parties, without specifying names.
Bavarian Pension Fund significantly reduces US real estate portfolio
Amid the crisis, BVK‘s US portfolio began to shrink rapidly. The famous Transamerica Pyramid in San Francisco, purchased in 2020 for approximately 560 million euros, was transferred to the ownership of the Cypriot investment company Yoda PLC. A similar fate befell other iconic objects. Last year, the New York company Nahla Capital announced the purchase of The Raleigh hotel complex in Miami, which previously belonged to the Bavarians. According to the economic portal Bloomberg, a property in Beverly Hills, bought for about 110 million euros, was also sold.
Business partners did not provide detailed comments, and the Bavarian Pension Fund only briefly explained that it welcomed these sales. From the leadership’s perspective, this means that the threat of further “bottomless financial holes” at these sites has been eliminated. However, it remains unclear to the public how large the actual losses hidden behind these deals are.
What is the size of the new losses in the US?
Data from the US real estate portal The Real Deal paints a grim picture: the Transamerica Pyramid and Raleigh were sold for a total revenue of only about 60 million euros. Meanwhile, according to the portal, the owners had invested about 350 million euros into a massive renovation in San Francisco alone. The architectural monument was transformed into one of the city’s most exclusive office centers, but these investments apparently did not pay off. BVK provided no data on its modernization costs. For other market participants, the consequences were even more severe: for the pension fund of Hessian lawyers, the sale resulted in a total loss of capital, as confirmed by Handelsblatt.
Corruption trail: internships for relatives and luxury hotels
The fund was forced into transparency recently in the Munich labor court. The proceedings there focus on how high-risk deals involving an individual with a fraud conviction became possible. The case was triggered by a lawsuit from a former BVK manager involved in the deals and dismissed last year. Although the court formally sided with him due to a procedural error regarding the notice period, the fund’s motives for the dismissal are shocking. According to the newspaper Abendzeitung, the judge mentioned non-trivial compliance violations by the manager.
The investigation established facts of inappropriately close relationships between the employee and other deal participants. The statement mentioned:
- Expensive gifts, luxury trips, and invitations to entertainment events in the US;
- Systematic benefit-seeking for oneself and family members;
- Deliberate misrepresentation of expenses for stays at a luxury hotel in New York. Furthermore, Abendzeitung reported that a relative of the BVK employee received internship positions directly with Shvo and at Deutsche Finance.
Fund announces immediate dismissal again after court defeat
The manager’s lawyer did not respond to requests regarding these allegations. The fund announced its intention to appeal and use all available legal means. While the organization did not comment on back-pay issues, it reported that based on new data from a recent audit, another decision for immediate dismissal was issued. The fund faces another trial regardless, as another manager allegedly involved in the case has also appealed their dismissal.
It remains doubtful whether the loss of such large sums can be explained solely by the misconduct of individuals. In the past year, measures to strengthen control mechanisms were announced. At the same time, external oversight is apparently decreasing: the Bavarian State Parliament plans to abolish the fund’s obligation to provide regular reporting. The Bavarian Pension Fund is under the jurisdiction of the Bavarian Ministry of the Interior. According to its own data, the organization has capital of about 120 billion euros, of which investments in American real estate account for approximately 1.3% of total funds.Source: Merkur.de
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