Munich Prosecutors Raid BVK Pension Fund Offices in US Property Corruption Probe — BigGo Finance

Munich prosecutors searched the offices of 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.

The raid on BVK came two days after investigators searched the headquarters of asset manager Deutsche Finance Group, according to a statement from the Munich prosecutor’s office. Three private apartments in and around the city were also searched.

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 that were carried out with Deutsche Finance’s involvement and that 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, spanning professions from doctors and lawyers to stage workers and chimney sweeps. The fund has said it could write off as much as €853 million ($957.4 million) of the approximately €1.6 billion ($1.8 billion) it invested in the properties, with €392 million ($440.0 million) of that already recorded by the end of last year.

Deutsche Finance confirmed the earlier 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. Neither SHVO nor its owner, New York developer Michael Shvo, was named in the prosecutors’ statements, and neither has been accused of wrongdoing.

BVK declined to comment, and 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 real estate developments, including in the US, 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. 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.