Dutch retailer scheme doubles mortgages allocation, cuts private equity
The €4.3bn Ahold Pensioenfonds is to increase its stake in residential mortgages from 3.2% to 7.5% during 2017, as part of a wider asset allocation shift.
The scheme, for employees of the Dutch retail conglomerate Ahold, is also seeking to divest from private equity and unlisted real estate in a bid to simplify its portfolio.
Commenting on the scheme’s annual report for 2016, John de Waal, the pension fund’s financial and risk manager, said it considered residential mortgages “a safe investment, which generates better returns than government bonds”.
Last year, the pension fund’s residential mortgages allocation yielded 7.8%.
In part to finance the increased stake in mortgages, the Ahold scheme has raised its cash position to 7.4%, largely using the proceeds of a renewing of its interest rate swaps.
It indicated that it also needed additional liquidity for the transition to cleared swaps under the European Market Infrastructure Regulation. As a consequence, it had ceased securities-lending of European equity and bonds, it said.
De Waal, who is also executive trustee in the scheme’s new one-tier board, said that the pension fund had also started divesting its non-listed property in favour of listed real estate.
“Non-listed property offered insuffient added value,” he said. “Moreover, we also want to keep our portfolio as simple as possible.”
Ahold Pensioenfonds has also started divesting its 2.3% private equity allocation, as the scheme lacked the necessary expertise and extra returns did not outweigh the risks, according to de Waal.
The annual report showed that returns on private equity averaged 11.7% a year since 2010, 1.8% above average equity yields. In the opinion of the pension fund, however, the extra returns should be at least 3% above average yields.
The Ahold Pensioenfonds reported an overall result of 10.7% last year, with its 60% interest hedge contributing 4.6%. However, its currency hedge lost 0.3 percentage points and its interest rate hedge on US credit lost 0.1 percentage points, following falling rates.
Among its best-performing asset classes were high yield bonds (17.1%) and emerging markets equities (15.8%).
Last year, the Ahold Pensioenfonds spent 35 basis points (bp) on asset management, including 8bp on transactions.
Its coverage ratio improved to 105.3% as at the end of March.