ABP, the €359bn pension fund for Dutch civil servants, has said it will stick with its strategic investment mix of 40% fixed income and 60% securities for the next three years.
In its 2015 annual report, it said it made only marginal adjustments to its investment portfolio, including the reduction of its hedge fund portfolio from 6% to 5%.
ABP combined its various hedge fund strategies into a single unit to reduce costs, which dropped from 558 basis points to 444bps over the course of the year.
It returned 13% on the asset class but said almost 12 percentage points was due to the appreciation of the US dollar against the euro, adding that quantitative equity strategies were delivering the best results.
The pension fund also increased its allocation to long-term government bonds to 2.7% to improve its protection against low interest rates.
It said the change would enable it to reduce the use of derivatives as hedging instrument.
Its first investments – in Dutch and German long Treasuries – delivered 2.3%.
ABP said it would divest its 0.9% allocation to ‘alternative inflation’ due to “insufficient opportunities in the market”.
The portfolio consisted of bonds and loans to organisations involved in infrastructure, real estate, telecoms, energy, water and environmental services.
Private equity, returning 24.8%, was the best performing asset class.
ABP attributed the result to several IPOs and sales to strategic buyers, combined with the appreciation of the US dollar against the euro.
It said it would increase the allocation to its internally managed private equity portfolio but did not provide further details.
At year-end, the allocation was 5.1%.
The pension fund credited the performance of its alternatives, as well as the 7.5% return on its 30% equity portfolio, for its overall net return of 2.7%.
Developed-market equities produced 11.7%, an outperformance of 0.6 percentage points, “thanks to fundamental and European-focused strategies”.
Emerging market equities, however, lost 4.7% over the period.
ABP also lost 0.5 percentage points of return on its 25% interest hedge, as well as 3.5 percentage points on part of its currency hedge.
The pension fund reported a return of 16.9% on real estate – with listed property companies and funds delivering the best results – and 5.8% on credit.
Its opportunities fund, which includes intellectual property and energy-related investments, returned 10%.
The scheme attributed the 20% loss on commodities not only to energy but also metals and agriculture.