Dutch pension funds are evaluating their exposure to US equities, and although decisions have largely yet to be made, allocations look set to fall in the medium to long run.
There has been “considerable consultation” within SNS Reaal pension fund’s investment committee about the impact and consequences of Trump’s tariffs, according to director Sybrand Nauta.
He said current geopolitical developments will be taken into account when decisions are made about the fund’s €3.2bn strategic investment portfolio in the new pension system.
Mark Rosenberg, chair of the investment committees for the €22.1bn agriculture and horticulture scheme BPL, and the €8.5bn Bpf Schilders, did not rule out the possibility that “developments in the US” will lead to changes in the strategic investment allocation at either or both funds.
Rosenberg said the investment committees would assess the “world order and the economic and social situation in the US” when strategic investment policy is reviewed in the autumn.
“We are going to dive deep into this,” he added.
Rosenberg said he was concerned about the unpredictability of Trump’s policies, particularly regarding the US judicial system, immigration and education.
“All this leads to a lot of uncertainty, also for Dutch pension funds. If we have a dispute with an American company, will we still be able to get justice in America?,” he asked.
However, Rosenberg added: “The tariffs that have now been announced are not the tariffs that will eventually be levied.”
BPL and Schilders, respectively, invest 68% and 63% in US equities; one of the points to be discussed is whether the two funds will reduce their weighting to US equities.
More emphasis on Europe
Sandor Steverink, investment consultant at WTW, said several clients are already thinking about reducing their exposure to US equities: “They are very busy with implementing the new pension system, but the subject is certainly on the table.”
Steverink expects that many pension funds will reduce their US equity exposure in the next 12 months, owing both to market developments and active decisions. “Trustees are well aware that if America distances itself further and further from the rest of the world, the current allocation to US equities can no longer be justified. They are therefore reviewing their regional allocation to the US.”
“I expect that now there will be more emphasis on Europe”
Sandor Steverink, an investment consultant at WTW
In recent decades, pension funds have usually moved away from specific regional allocations, instead opting for global portfolios. “I expect that now there will be more emphasis on Europe. In recent years, there has been a lot of discussion about whether funds should invest more in the Netherlands. That discussion is now repeated, albeit from a European perspective,” he continued.
ESG considerations also point to an increased focus on Europe, Steverink added. “The question is what the board thinks of governance in the US as a country. What you often see is that large companies in America have to keep their policies in line with the preferences of the government. Many companies are now playing safe by withdrawing their sustainability and diversity policies, fearing to be penalised if they don’t. Does this still fit in with the investment policy of Dutch pension funds?”
Not a crystal ball
A chief investment officer of another pension fund, who requested anonymity, saw no reason at all to start a discussion about US exposure. He said: “America simply has the most and the largest listed companies. You can say “the crisis is greatest in America so I’m smart and I’m going to invest less there”; but everyone has the same amount of information, which has already been incorporated into prices. If you don’t have a crystal ball – and I don’t have one – then a pension fund should simply invest in a diversified way. If it does so, it will largely end up in America.”
The CIO did not rule out the possibility that his pension fund will change its strategic investment policy in the long term if market volatility persists and return expectations and risk perception are affected.
He added: “One question then is whether equity risk is still rewarded the same as it was a while ago. But we certainly don’t deal with that tactically, unless a real crisis situation arises.”
Gerben Everts, director of the Dutch Association of Stockholders (VEB), said last week that pension funds are repatriating capital back to Europe.
“The fact that a lot of capital is now being moved can also be seen from the development of the exchange rate of the euro against the US dollar,” he said, pointing to the euro’s recent rise against the dollar and the fact that Bund yields have barely risen.
“Normally, you would expect a sharp rise in interest rates in response to this increased risk, but that has not materialised. That is only possible if a lot of capital has flowed into German Bunds,” said Everts.
Don’t switch too late
Everts also said managers of investment funds have confirmed they “exited US stocks with rocket speed” in April. BlackRock and Deutsche Bank have calculated that $47bn has now been transferred from US to European ETFs. “I would think it would be unwise if pension funds did not anticipate the movements of other investors,” said Everts.
“I would think it would be unwise if pension funds did not anticipate the movements of other investors”
Gerben Everts, director of the Dutch Association of Stockholders (VEB)
He continued: “Trump’s tariffs are not off the table. As a result, inflation, unemployment and interest rates in the US will rise in the short term, while interest rates in Europe will fall. As a result, the US market is structurally less attractive to invest in. The largest capital market is heading for a self-created recession and is putting the survival of democratic capitalism in the US at risk. In addition, investor confidence in Europe is growing.
“Pension funds are increasingly looking for investments that appeal to their members. This will lead to more investments in Europe and the Netherlands, which will be partly financed by the sale of US shares and bonds. American stock markets had their time under the sun, but this is responsible investment in 2025. Don’t switch to the new reality too late,” he said.
This article was first published on Pensioen Pro, IPE’s Dutch sister publication. It was translated and adapted for IPE by Tjibbe Hoekstra
