NETHERLANDS – ABP and PFZW, the two largest pension funds in the Netherlands, have warned of possible future rights discounts after reporting second-quarter losses of 1.9% and 2.6%, respectively.
Both schemes saw coverage ratios drop by 4 percentage points over the period – to 97% and 101%, respectively – due to poor returns on investments.
They also cited rising interest rates, which have had hit fixed income holdings and hedges on interest risk.
PFZW said the official accounting rate for liabilities – the three-month average of the forward curve, combined with the application of the ultimate forward rate – knocked 2 percentage points off its coverage ratio alone.
During the second quarter, the healthcare scheme saw its assets drop by €3bn to €132bn, while ABP reported a €6bn decrease to €286bn.
Peter Borgdorff, director at PFZW, acknowledged that the drop in funding had brought the prospect of a rights discount next year “dangerously close”.
He underlined the importance of sound decision-making by the government about the new pension arrangements coming into force in January 2015.
Borgdorff’s gloomy prediction was echoed by Henk Brouwer, chairman at ABP, who said the odds of a rights cut in 2014 were still “significant”.
Up to now, PFZW has managed to avoid any rights discount, whereas ABP said it would reduce pension rights by 0.5% last April.
Both pension funds attributed their losses to a turn in investor sentiment on the news that the US would be likely to wind down its quantitative easing programme.
PFZW said this led not only to a 0.3% loss on its 28% equity portfolio but a 5.7% loss on its holdings in emerging market debt and high-yield bonds.
Rising interest rates also caused combined losses of 7.8% on investments in government bonds, interest swaps and inflation swaps, while credit holdings lost 1.7%.
PFZW attributed the 4.7% loss on its commodities portfolio to falling prices.
The healthcare scheme reported positive results on private equity (3.6%), property (0.4%), infrastructure (1.4%) and hedge funds (0.8%).
ABP said almost all its asset classes performed negatively and reported losses on government bonds, credit and inflation-related bonds of 0.2%, 1.9% and 3.1%, respectively.
Its equity portfolio lost 2.5%, with emerging market equities falling by more than 9% and commodities by 7.5%.
By contrast, its private equity portfolio returned 2.9% over the period.