NETHERLANDS - Ronald Wuijster, chief client officer at the €300bn asset manager APG, has spoken in support of the contribution “innovative” investments make to pension funds’ returns and diversification.

In the keynote speech at an investors conference organised by IPE sister publication IPNederland, Wuijster argued that it was possible to transform alternatives into liquid assets within a relatively short period, but he stressed that the speed was dependent on the scale of the holdings.

He also downplayed the difficulty of valuing alternatives, citing a portfolio of music rights at the large civil service scheme ABP, APG’s main client.

“After all, a market price is not a certain economic value either because of the market sentiment and the negotiability of the investment,” he added.

Wuijster said hedging constructions following the financial assessment framework (FTK), such as hedging against interest risk, currency risk and inflation risk, were far greater liquidity risks.

“I believe in the value of illiquid investments, as long as their allocation doesn’t exceed 30% of the entire investment portfolio,” he said.

However, he underlined the importance of solid reporting about alternative investments, adding that their management did not necessarily require exceptional skills, just different expertise.

Wuijster also said APG saw investment opportunities in Dutch inflation-linked bonds, as well as in public-private partnerships on inflation-linked financing.

He said it must be possible to find common ground “at the end of the long curve” to overcome the Dutch Treasury’s reluctance in issuing ILBs.

The CCO also advocated new initiatives to restart the securitisation of mortgages and loans to small and average-sized companies, “as these activities have largely ceased since the start of the financial crisis”.

In his speech, Wuijster warned against political pressure on pension funds to increase their investments in the local market, such as in mortgages, arguing that this would distort the market and cause “serious” problems.

“Pension funds should not be forced to make investments that don’t comply with their benchmarks,” he said.

Wuijster attributed the current funding problems at Dutch pension funds mainly to the impact of rising longevity and “too optimistic” management decisions, such as “granting too generous pension rights and charging too low contributions”.

He added: “Cumulative nominal and real returns of Dutch schemes during the past 20 years were 7.5% and almost 5%, respectively.”