Anja Mikus, CEO and CIO KENFO - The Fund to Finance the German Nuclear Waste Management
Last one out, please turn off the lights and lock the door. No, that’s not how you close down a nuclear reactor. It’s a complex, long term, arduous – and expensive – undertaking. And in Germany, Anja Mikus is helping to pay for it. She’s the CEO and CIO of Fonds zur Finanzierung der Kerntechnischen Entsorgung (KENFO, or the Fund to Finance the German Nuclear Waste Management), which has received €24.1 billion from Germany’s four major electric utilities to pay for the disposal of their radioactive fuel rods, the key step required so that Germany can “decommission” its fleet of nuclear plants. These fuel rods will be highly radioactive for, oh, about 1,000,000 years, Mikus says, so “it’s really a big challenge and the task of a century to find a final place where you can put this stuff.”
In the wake of the Fukushima nuclear catastrophe in June 2011, Angela Merkel’s government announced it would close down Germany’s 25 nuclear power plants by 2022. KENFO, set up in mid-2017 as Germany’s first sovereign wealth fund, resembles the Nuclear Decommissioning Trusts created in the U.S. and similar entities in the UK, France, Switzerland, and elsewhere, all created because you don’t close down a nuclear reactor overnight. The fuel rods first have to be carefully moved to safe locations, so the utilities can then dismantle or “entomb” their decommissioned nuclear plants. Although everybody loves the Tate Modern, the London museum set up in a former coal-fired electric station, nuclear power plants aren’t likely to be repurposed.
Mikus is charged with figuring out how to invest KENFO’s stake over its 80-year projected life span in order to pay for both immediate and long-term storage bills. Two state-owned engineering companies will actually dispose of the rods; KENFO’s job is to generate enough money to pay them.
But how to develop an investment program with unknown future liabilities? Unlike pension funds, which can rely on actuarial studies to assess longevity risk, there is no significant body of relevant historical experience regarding liabilities arising from nuclear decommissioning. KENFO’s starting point, Mikus says, “was a very detailed study and analysis assessing how much money will be needed and what should be the target yield.” The original estimate is that KENFO’s €24 billion euros will need to throw off €132 billion by the end of the century.
Armed with its original study, Mikus moved to more familiar ground with a traditional asset-liability study in order to find a suitable portfolio for the expected payouts over the fund’s lifetime. The findings? “Our target yield at the moment is 3.9% per year.” That’s no small challenge in Germany’s current world of negative interest rates. To get there, Mikus says, these days, “Our strategic asset allocation is about 10% in governments, and then the rest in the riskier side of fixed income – emerging markets, high yield, and corporate bonds – totaling 25%. Equity and REITS total 35%. At the moment, we have only around 1% in private markets – we just started – and our target for private markets is 30%. The current cash position is 18%.”
There’s still nearly €5 billion to be put to work, and Mikus expects the government bond portfolio to stay at 10%, while the relative allocations to fixed income and equity and REITS come down and private markets go up to almost 30%. She says some of the dry powder is now being committed to private equity, infrastructure, real estate, and “later on a small exposure of private debt.” Mikus admits the conditions of private markets “are extremely demanding also compared to liquid markets where I’m coming from,” and all seem richly priced, but “it will not make sense just to stay in cash for years and wait for lower prices while demand is high and, so we go step by step. We diversify consequently, and we will not invest larger amounts at one time. According to our investment plan, we will build up our investments until 2028.”
As for strategies, she says, “We are currently putting more money on the value side, and we will have a search for value managers because we are – like many indices and benchmarks – really overweight in growth, and value is underweight due to the market valuation.”
KENFO has a small team – seven investment professionals and a total staff of 30, Mikus says, so “at the moment, 100% of our portfolio is outsourced to other asset managers. We have mandated 17 specialized asset management companies managing different segments.” To find its managers, KENFO worked with consultants, who “helped us to find asset managers worldwide with good track records and stable teams. We had a large number of beauty contests,” she says, adding, “Maybe you can imagine that many asset managers and investment banks have tried hard to contact us in order to get a mandate.”
She pushes would-be managers hard on ESG: “It is very common that asset managers pitching for our mandate claim to have a strong focus on ESG criteria. However, we believe that it is essential to integrate these capabilities within, or at least very close to, the portfolio management function. To develop the ESG approach in a completely separate department is” in her view “not effective.” Mikus adds, “Such an integration of ESG into the portfolio management is key for KENFO’s sustainability approach because it has a Net-Zero target for its whole portfolio and regularly makes investment decisions based on the ESG evaluations of its managers. The rationale behind this is that good ESG performance ultimately goes hand in hand with good financial performance.”
Another guiding principle in picking managers as well as investments is “we need diversification. Our investments are not only in Germany but all over the world and in every asset class where we can invest, and we also want diversification across asset managers. Therefore, we will hire some more asset managers with different styles and different approaches.”
Mikus admits KENFO sits athwart two cultures: “KENFO is an institutional investor, but we are also a government organization. It’s a real challenge to bring this together – to think as an investor, but to have reporting and organizational issues as a public sector entity. I have learnt in the last three to four years how important it is to talk frequently to our stakeholders – e.g. people from the government – to discuss how we make investment decisions, and how we are managing risk while having insufficient information.”
If the KENFO mission and organization is unique, so is its CEO. In Germany, “women are still extremely underrepresented in the financial sector,” Mikus says, and this is particularly the case “in the core sector – in ‘production.’ There are only few women with professional investment experience on a senior management level in Germany.”
She been active in trying to alter that. “We try to prove that we can hire more women, but to find women who are financial experts is extremely difficult.” Nonetheless, the pipeline is expanding, she says: “I’m a member of the female network ‘Fondsfrauen’ for women in the financial industry, and we now have 2,000 members in our network – that’s a good sign.” Bringing women into investment decision making is important for our society but also important, Mikus says, because “women provide another approach to risk, so it’s essential to have a diversified team. Women have a lot of talent for thinking in a cross-functional; and they are open to innovations and change and networking. These are very important prerequisites in investments and management positions. In the investment management area, a diverse team is more likely to identify a broader range of controlled risks and opportunities.”
Mikus is used to being a pioneer for her gender. She started her career in the late 1980s as a financial analyst and then became an equity analyst at Allianz, the big German insurer and asset manager. How did she move into its fund management area? “I asked,” she explains. “I talked to fund managers, and I thought, ‘That’s very exciting to think about the future, not always about the past, and to develop strategies on how to invest.’ I liked that, and therefore I just asked the head of the department, and he offered me a job as a junior portfolio manager for fixed income. And so, I was hired as a portfolio manager.” She went on to become the first woman to run the largest German fixed income mutual fund. She worked first in Stuttgart and later on in Munich and then with PIMCO, the Allianz acquisition in Newport Beach, California.
For nearly two years she traveled to California regularly. “And yes, I met Bill Gross and talked to him frequently,” she says. All in all, “It was a very pleasant experience. I was on the trading floor. In those days there were not many female portfolio managers on the trading floor. It was amazing to hear all the investment ideas and to learn about the outstanding decision-making process of PIMCO. That was a great experience.”
In 2001 she became managing director of Union Investment, the big investment management arm of the DZ Bank group. She stayed there as CIO for a dozen years before moving on to Arabesque Asset Management, a boutique ESG quant shop based in London. In 2015, meanwhile, she was appointed to the Aufsichtsrat, the board of non-executive directors, of Commerzbank, Germany’s second largest commercial bank.
Since taking up the KENFO post in 2017, Mikus divides her time between a flat in Berlin and her house outside Frankfurt. Being married and a mother of a grown-up, what else does she do besides her job? “Family, friends and sports – that’s almost all of it beside my job. I liked running; now I go on my bike. I also do studio cycling on an indoor cycle.”
In sport as in investing, Mikus chooses her risks carefully. But in her career, she has been bold: “I think you get in life what you have the courage to ask for,” she says. “That’s really important: Ask and take responsibility. Don’t just wait to be asked because you are good. Just ask for better jobs.”