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Nestlé's Dutch scheme sacks in-house funds, drops inflation hedge

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Alliance, the €622m Dutch pension fund of Nestlé, has divested from three of its in-house hedge funds.

In its annual report for 2016, the scheme said it had also ceased hedging its inflation risk. Alliance, which has 3,380 participants, had a 12.5% stake in hedge funds at the end of last year.

Although several Dutch pension funds have divested from hedge funds during the past few years, Alliance’s decision is remarkable as its holdings were part of Ireland-based Robusta, the umbrella fund through which pension assets of Nestlé’s international schemes are pooled.

The Dutch pension fund divested almost €71m from three funds-of-funds managed by Robusta.

In its annual report, Alliance said it had sold its stake because of high risk and costs as well as decreasing returns. Last year, its hedge funds allocation delivered 2.3%, an underperformance of 0.6% percentage points compared to its benchmark.

The pension fund said it had reduced its asset management costs from 0.94% to 0.56% as a result of the divestment. It also said the move had led to slightly higher expected returns.

The sale of its hedge funds came in favour of investment grade and high yield credit, alternative fixed income as well as listed property.

The annual report revealed that the pension fund also withdrew a €20m allocation to European small caps from Robusta. At the end of 2016 the scheme had a €13m allocation to private equity run by Robusta.

Earlier this year Nestlé sacked its internal asset manager, Nestlé Capital Management, from several Robusta mandates, replacing it with external providers including BlackRock and Grosvenor.

Alliance still receives investment advice from Swiss-based Nestlé Capital Management.

In its annual report, Alliance also said it had decided to gradually reduce its 20% inflation hedge through swaps, after an asset-liability management study had shown that the cover only had a marginal effect on the scheme’s results.

In 2015, it had seven swap contracts with a combined negative value of €25m, with several merchant banks.

At the end of 2016, it had terminated three contracts, leaving a remaining contract value of €17m.

During last June’s congress of IPE’s sister Dutch publication Pensioen Pro, asset manager AXA urged pension funds to pay more attention to inflation hedging, for example through inflation-linked bonds.

Alliance declined to clarify its decision to divest from Robusta’s hedge funds and to cease its inflation cover.

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