NETHERLANDS – Europe’s largest pension fund, the 147 billion euro Dutch civil servants’ ABP, says its investment strategy is geared towards fixed interest and equities in 2003/2004, matching its liabilities and risk profile – though it does not rule out making use of temporary market moves.
“ABP’s current investment strategy is oriented towards a division between fixed-interest securities and equities and real estate in the years 2003/2004 matching ABP’s liabilities and its risk profile,” ABP says in newsletter.
“This division runs as follows: 40% fixed-interest and 60% equities, or course, spread out well at an international level,” writes ABP’s Marcel Vleugels in the latest issue of ABP World.
ABP says that at the end of 2001 the share of equities in its entire portfolio had risen to 49%, which indicates that its strategy is on track.
It says the division of asset classes is vital as long-established pension funds such as ABP “badly need” high investment returns. If the return is 1% lower, contributions will have to rise 6.7% it says. “In these uncertain times a cover ratio of 140% should be thought desirable. The entire financial policy has been attuned to this purpose.”
The fund also seeks active and alternative investments. “It is ABP’s ambition to exploit the limited possibilities of extra returns by means of active and often alternative policy instruments.” It says private equity comprises 5% of its portfolio, with commodities taking 2%, hedge funds 3% and index loans 1%.
It also targets what it terms “tactical alpha” as a way of exploiting market moves. “Another way of active policy is ‘tactical alpha’, both in shares, fixed interest securities and in alternative investments,” Vleugels writes. “By this specific tactical means of policy, ABP avails itself of transitory imbalances, either between or within the financial markets.”
“This requires a temporary choice of position in order to obtain extra returns at the moment the markets regain their balance.” By this strategy, ABP aims to obtain a half percent extra return “without running especially big risks”.
The remarks chime in with what ABP’s chief investment officer, Jean Frijns, told delegates at the IPE awards in Amsterdam in November. He said then that pension funds should seek to increase the robustness of their long-term investment strategies and strengthen their capacity for risk absorption in stressful times.