Market risk from capital investments

Capital investments at Lufthansa are managed as part of the operating and strategic liquidity. Investments are also made by the Lufthansa Pension Trust and other pension funds in the Group. The risks mainly consist of potential price changes for shares, fixed-income securities and interest rates, as well as credit risks.

Capital investments to ensure Lufthansa’s operating liquidity are made in accordance with the Group’s financial guidelines. The duration of the investments is limited to twelve months, whereby at least EUR 300m must be in investments that can be liquidated on a daily basis. For its operating liquidity Lufthansa mainly uses money market funds which can be liquidated daily, overnight deposits, fixed-term deposits and short-term securities, especially commercial papers, from creditworthy issuers. Investments must be with counterparties which have a rating of at least “BBB”. Only 30 per cent of investments for operating liquidity may be invested with counterparties with less than an “A” rating. Investment in money market funds may not exceed 10 per cent of the fund’s total assets.

We have determined the investment structure of the strategic minimum liquidity for the Lufthansa Group using a stochastic allocation study. It was based on the liquidity requirements and our conservative investment principles. The majority of these investments are in money market-related products. The strategic minimum liquidity is divided into various components with different investment horizons. They are managed by several external asset managers with separate mandates. One of the requirements is that the investments must be able to be liquidated within a maximum of four weeks. Each manager follows his or her own investment guidelines derived from the general Lufthansa investment principles. The asset allocation is reviewed regularly and adjusted as necessary. The experience from the financial crisis in particular has led to an even greater focus on liquidity and counterparty risks. Risk management with a defined stop-loss has also been implemented across all asset classes.

Lufthansa is in permanent contact with the asset managers concerned and monitors their performance by means of daily and monthly performance and risk reports.

Investments by Lufthansa pension funds are made on the basis of regularly updated allocation studies. Specific investment guidelines for the individual asset managers follow the Group’s conservative investment principles. We follow the principle of diversifying risk by dividing the investments across a broad range of assets classes and managers. A risk management system is also in place for the Lufthansa Pension Trust, which enables daily controlling on the basis of a strict risk budget.

Scheduled contributions to the pension fund were continued in 2011, see chapter “Financing measures”.

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