ABP, Europe’s largest pension fund, is currently in the process of establishing its new strategic investment plan to run from 2007 to 2009.
According to a spokesperson, such plans are “cyclical”. The scheme currently has roughly 43% invested in fixed income and 55% in equities, real estate and real estate funds, private equity and commodities. A further 2% is invested in hedge funds.
The new investment plan is likely to be released at the end of summer. He declined to comment on any broad investment changes that are likely to occur.
The Heerlen-based fund said its coverage ratio at the end of the first quarter reached of 2006 reached 132% - up from the end-2005 figure of 120%. The driver for this was higher interest rates, said finance chief Dick Sluimers, speaking at a presentation of its new annual report.
He also indicated that if the current developments continue to improve issues such as full indexation or even lower premiums could be a topic for discussion again. The latter will not be put into place before the end of 2006, as full indexation and repairing the missed indexation in former years will have a priority. According to the DNB, the supervisor, ABP, as most other pension funds, is requested to have at least a coverage ratio of 125%.
Sluimers also indicated that even though ABP has reported an overall yield on investments of 12.8%, the fund is still wary of possible threats in the future.
ABP’s current success is partly based on the increased interest rates. As Sluimers stated, the effective yield on ABP’s long-term bonds has increased from 3.7% to 4.15%. He noted that a 1% point change in interest rates changes the coverage ratio by 17%.
In contrast to most Dutch pension funds, the duration of ABP’s fixed interest portfolios very short, only around five years.
CIO Roderick Munsters said current investment strategy and asset class divisions would stay the same.
Munsters also indicated that the current equity stake in real estate fund Vesteda would be partly divested, as stated before. However, a suitable buyer has not yet been found.