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Pension fund for Dutch doctors moves to de-risk investment portfolio

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SPH, the pension fund for general practitioners in the Netherlands, has moved to simplify its investment portfolio to reduce risk and cut costs.

According to its annual report for 2014, the scheme re-invested nearly half of its €9.5bn portfolio, largely switching to passive management.

It also cancelled performance fees for credit and fund-of-hedge-fund managers.

Johan Reesink, chairman at the scheme, said nearly 90% of all performance fees could be cancelled as and when management contracts were renewed.

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He added that the pension fund’s aim was to eliminate all performance fees.

As a consequence of the portfolio reshuffle, asset management costs – apart from transaction costs and remaining performance fees – fell from 0.26% to 0.15% of assets under management.

The pension fund increased its fixed income allocation from 36.4% to 50.8%, investing in liquid Dutch, German and French government bonds.

This came largely at the expense of equity holdings, which the scheme cut by one-quarter to 29%.

SPH divested its 3% stake in US and UK inflation-linked bonds, as well as its positions in Canadian and Australian government paper.

“The risks of keeping these bonds outweighed the advantages for diversification,” Reesink said.

He said the pension fund re-focused its equity holdings on the longer term, while shifting its global equity, emerging market and small-cap holdings into single and passive mandates.

It had previously bundled its developed-market equities into one mandate.

As part of the reshuffle, the pension fund also reduced its hedge fund allocation by 0.6 percentage points to 4.7%, and cut its commodities exposure by 1.1 percentage points to 3.9%, while switching to passive management.

It raised it infrastructure allocation by 0.1 percentage points to 1.8%, inching towards its strategic target of 5%.

Last year, the GP scheme expanded its real estate portfolio from 3% to 3.3% while lowering the risk profile of its non-listed holdings by adding “stable property” in core segments of developed countries.

SPH reported a 14.7% return over 2014, attributing 3.2 percentage points of performance to a 50% interest-risk hedge.

Almost all asset classes contributed positively, with commodities, losing more than 18%, the only exception.

The scheme’s fixed income portfolio returned 14.9%, but long-duration German and Dutch government bonds returned up to 27%.

Listed property returned 22.1%, while remaining positions in private equity returned 21.6%.

SPH’s coverage ratio stands at just under 140%.

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