Falling interest rates largely offset strong returns at biggest Dutch schemes
The five largest Dutch pension funds saw their assets increase by several percentage points during the second quarter, following positive results on all asset classes. However, because their liabilities also increased as a consequence of falling interest rates – the discount rate fell by 21 basis points to 2.54% over the period – their funding improved only marginally.All of the larger Dutch schemes achieved good results on fixed income and equity, with several pension funds noting that emerging market equities were “making up” for their disappointing returns last year.The €325bn civil service scheme ABP reported a quarterly return of 5% (8.2% year-to-date) and saw its coverage ratio increase by 1 percentage point to 106.7%. But, according to vice-chair José Meijer, the slight improvement in the scheme’s financial position is “no reason for cheering yet”.She pointed out that, if interest rates remained at their current levels, ABP’s funding would decrease as a result of the three-month average approach for the discount rate.Emerging market equity, with an 8.4% return, was the best performing asset class, ABP said, adding that emerging market debt (5.9%) and property (6.5%) also performed well.Its investments in government bonds, credit and inflation-linked bonds (ILBs) generated 3.1%, 2.9% and 3.1%, respectively, while developed market equities returned 5.3%.The scheme reported returns of 4.7% for private equity, 4.8% for commodities, 2.9% for infrastructure and 1.8% for hedge funds.Meanwhile, €152bn healthcare scheme PFZW produced a quarterly return of 5.6% – and a return of 9% over the first six months – and said its funding had improved by 1 percentage point to 110%.The scheme attributed its 5.1% equity return to stimuli from central banks and an improved economic outlook.Its fixed income holdings generated 3.2%, benefiting from falling interest rates as well as from narrower credit spreads.PFZW further reported quarterly returns of 4.7% on property, 3.9% on high-yield/emerging markets debt, 2.5% on hedge funds and 2% on infrastructure.Its ILBs returned 3.5%. The healthcare scheme said its 4.8% profit on commodities was largely due to rising oil prices.The €53bn metal scheme PMT – the largest pension fund in the market sector – reported a quarterly return of 5.2%, and said its funding remained stable at 105.2%. PMT said its investments in equity, fixed income, property and alternatives returned 5.4%, 5.5%, 3.8% and 2.5%, respectively. Its year-to-date return was 11.6%.The metal scheme had to cut pension rights by 0.4% last May, following a funding shortfall at the end of 2013.The €43bn pension fund for the building sector, BpfBouw, returned no less than 6.9% over the second quarter, although the result included 3.1 percentage points from the interest hedge of its liabilities.BpfBouw’s funding increased by 2.2 percentage points to 116.4% at June-end.The building scheme also made clear that it was anticipating a funding drop during the third quarter, as a result of the three-month average of the discount rate for liabilities.It said it returned 6.1% on equity, 3% on fixed income and 1.9% on property.The €36bn metal scheme PME generated 4.9% on its investments and also closed the second quarter with a funding of 105.2%.It noted that it was able to benefit from falling interest rates due to its 59% fixed income allocation, which returned 3.4%, and that the 50% interest hedge on its liabilities added another 2 percentage points to its quarterly result.However, it also pointed out that its low-risk profile – with equity holdings of no more than 34% – also limited its ability to benefit from improving markets.Its equity investments returned 4.9%.