ABP has increased its investments in North America by three percentage points to 38% after changing its benchmark for government bonds.
The change involved a move from 100% euro-denominated bonds to a 50-50 split of euro-denominated and worldwide government paper.
In its annual report for 2016, the €387bn civil service scheme said the allocation adjustment – at the expense of investments in Europe – was meant to improve both liquidity and diversification.
The pension fund reduced its overall holdings in Europe by five percentage points to 22%, while raising its allocation to Asia Pacific assets by one percentage point to 12%.
Last year, it brought its investment mix in line with its investment plan for 2016-2018, comprising 60% securities and 40% fixed income, combined with a 25% hedge of the interest rate risk on its liabilities.
Other asset allocation changes saw the pension fund raise its allocation to developed market equities by 1 percentage point to 25%, at the expense of its stake in government bonds.
ABP increased its portfolio of emerging market debt by 1 percentage point to 3%, citing “attractive long-term perspectives” as well as the fund’s minimum allocation of 3% to each asset class.
Also to increase portfolio diversification, ABP said it had started investing in worldwide inflation-linked bonds, combined with a full currency hedge.
The civil service scheme further indicated that it was keen to increase its local investments – currently 15% – in particular in projects for energy transition and those aimed at improving the sustainability of residential property and schools.
Last year, it raised its commitment for financing startups from €200m to €500m, and committed €180m to the acquisition of 1,700 units of rental property in the mid-market segment.
The pension fund also said risk management needed to be improved and that fiduciary services would be provided by an independent branch of its asset manager APG. Both adjustments must lead to increased oversight of investment decisions, the pension fund said.
ABP, which generated a 9.5% result over the course of 2016, said it had reduced its asset management costs to 61 basis points last year.
Despite private equity and hedge funds – which made up 10% of the portfolio – incurring 36bps of costs, the scheme’s board reiterated that the expenses were justified, citing the asset classes’ contribution to diversification and their returns of 14.8% and 7.9% respectively.
It pointed out that its active investment policy had delivered €2.1bn of additional returns in 2016.
To further drive down costs, APG has extended its private equity team and made more direct investments.
ABP added that its asset manager had made almost 80% of last year’s commitments to private equity without a third-party manager, which would deliver “drastic costs reductions for the long term”.
Administration costs dropped to €79 per participant, thanks to a rise in the number of participants as well as a reorganisation at APG.
The civil service scheme also said it would work with employers and unions to simplify its pension offering. ABP said that its pension arrangements were becoming too complicated and almost impossible to explain to participants following many adjustments, largely as a result of new legislation.