Losses at top Dutch schemes ‘reflect brittle recovery’
The five largest pension funds in the Netherlands all recorded losses in the first quarter of 2018.
Both the €405bn civil service scheme ABP and the €197bn healthcare scheme PFZW attributed their quarterly losses – 1% and 0.6% respectively – to fear of inflation in the US as well as the trade barriers mooted by US president Donald Trump.
The funds indicated that flat interest rates had also contributed to their slowing recovery in the first quarter.
“This shows how brittle last year’s improvement is,” said Peter Borgdorff, director of PFZW, expressing the broad concern among the schemes.
For ABP, PFZW and the metal schemes PMT and PME, the slowing recovery meant that the chance of unconditional benefits discounts remained as long as their funding ratio was short of the required minimum 104.3% for the next two years.
The healthcare scheme closed the first three months with a funding of 99.8%, after losing 2.5% on equity and 1.2% on property.
It credited bad performance from its real estate investment trust holdings to rising financing costs in the wake of an increase in long-term interest rates in the US.
Infrastructure gained 0.5%, while PFZW’s holdings of government bonds returned 0.8%. In contrast, its inflation-linked bonds produced a 4.7% loss.
The fund attributed the 5.4% quarterly return from its commodities allocation to rising oil prices as a consequence of decreasing oil stocks as well as signs that Saudi Arabia expected production caps in 2019.
The funding ratio for the Netherlands’ largest pension scheme stood at 103% at March-end.
Corien Wortmann-Kool, the scheme’s chair, said that, given the scheme’s current funding level, participants should expect little indexation during the next five years.
Even partial indexation would only be possible if funding rose above 110%, said ABP.
During the first quarter, the civil service scheme made a loss on its investments in equity (down 2.5%), property (down 3%) and its alternatives portfolio (down 0.4%). The same went for credit and emerging market debt, with losses of 1.9% and 0.7%, respectively.
ABP reported positive results on government bonds (0.5%), commodities (1.3%), infrastructure (1.7%) and its currency hedge (0.5%).
The €70bn sector scheme for metalworking and mechanical engineering said its funding stood at 101.5% at March-end, following a quarterly loss of 0.6%.
It incurred losses on equity (down 2.1%), high yield (1.3% loss) as well as real estate (down 2.1%).
The metal scheme indicated that it had reduced its 35% equity holdings by approximately 5 percentage points, explaining that the portfolio’s expansion on the back of last year’s rising markets had reached its upper limit.
It said it had divested both North American equity as well as stock of emerging countries, adding that it had kept the proceeds as short-term fixed income investments in its matching portfolio.
The €46bn pension fund for the metal and electro-technical engineering industry posted an overall quarterly loss of 0.9%. It said this was in particular due to “disappointing results” on equity, alternatives and high yield, which lost 3.1%, 2.1% and 0.7%, respectively.
However, its coverage ratio improved by 1 percentage point to 101.1%.
With a funding level of 116.7% a quarter-end, the €56bn pension fund scheme for the building sector, was still in the best financial position of the five largest schemes.
However, the 2.8% yield on its property investments could not fully compensate for losses on equity (down 2.7%) and fixed income (down 0.8%), resulting in an overall quarterly loss of 0.8%.