ABN Amro’s €23.5bn pension fund in the Netherlands has started investing in catastrophe bonds and emerging market debt in a bid to further diversify its investment portfolio.
According to its 2015 annual report, the scheme is looking to increase its 0.9% allocation to insurance-linked securities to 5%, and its 4.2% allocation to emerging market debt to 10%.
The ABN Amro Pensioenfonds reported an overall annual return of 1.7% for 2015, with its return portfolio generating 4.4%, due chiefly to the rebound in equity markets.
By contrast, it lost 1.6% on its matching portfolio, due largely to rising interest rates.
The pension fund has introduced a dynamic investment policy based on nominal interest rates and coverage ratio, scaling back its return portfolio when funding hits 140%.
Its matching portfolio is set within a bandwidth, ranging from a minimum of 40%, when 20-year interest rates are negative, to 85%, when 20-year rates are more than 4%.
The pension fund has set upper and lower limits on portfolio adjustments, to avoid having to make transactions – and incur trading costs – on limited market movements.
As of the end of 2015, its entire interest hedge – also including liquid assets and government bonds – covered 64% of the interest risk on its liabilities.
The scheme fully hedged the currency risk on developed market equities.
It acknowledged it had failed to grant indexation, as the consumer index had been at zero, adding that its financial position had been too weak to pay any inflation compensation in arrears.
As of the end of May, the scheme’s day-to-day funding stood at 114%.
The ABN Amro Pensioenfonds has 97,500 participants in total, of whom 19,800 are workers and 25,625 are pensioners.
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