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Builders' scheme opts for liability matching

NETHERLANDS - Dutch construction group VolkerWessels has outsourced the entire investment management of its pension scheme to new Dutch investment fund, First Liability Matching (First-LM).

The move follows a review during which the scheme adopted a new investment approach to reduce its short term overall risk level via matching, while aiming for a strict annual return target via a diversified return portfolio.

"By using a very restricted tracking error of approximately 0.5%, First-LM aims to provide added value in absolute terms when tracking the pension fund's liability index," said First-LM's founder and managing director Henk Beets.

Beets, who has been consulting for the VolkerWessels scheme, said First-LM had five more Dutch institutional clients lined up.

Though the approach is not new for Dutch pension funds, First-LM says it offers a low-cost investment strategy providing optimal protection of pension liabilities including a realistic level of protection against inflation.

"Direct benefit is a more efficient use of investment risk," said the VolkerWessels fund managing director, Rob Kragten. "By immunising the anticipated non-rewarding interest rate and inflation risks, the pension fund is able to strongly reduce its short-term risk while the expected returns remain the same."

The fund has liabilities of €850m.

The firm commenced the mandate on November 1 last year.

The First-LM fund is structured as an open-end investment company in which its shareholders/owners can only be pension funds. The VolkersWessels pension fund is the firm's first shareholder, according to Beets, who fell out with management at his previous employer, market-tracking giant, Vanguard Investments Europe, followed by an acrimonious legal case.

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