PFZW drops hedge funds from strategic investment portfolio
The €156bn healthcare scheme PFZW has announced it will no longer invest in hedge funds as a strategic investment category, as the asset class no longer matches its new investment policy.
It said it divested its 2.7% hedge fund allocation last year, adding the target strategic allocation for hedge funds to its equities holdings.
The decision of the second-largest pension fund in the Netherlands followed a re-assessment of all asset classes for their sustainability, complexity, cost and contribution to PFZW’s objective of index-linking pensions.
“The hedge fund investments did not match the criteria fully,” it said.
In 2003, PFZW was one of the first Dutch pension funds to invest in hedge funds, chiefly to achieve greater diversification in its investment portfolio.
Jan Willem van Oostveen, PFZW’s financial and investment policy manager, said complexity was major factor behind the scheme’s decision to drop hedge funds.
“In our new investment policy, we agreed greater emphasis should be placed on controllability and intelligibility,” he said.
“That’s why a complex asset class like hedge funds, which encompasses such diverse strategies, no longer sits well with PFZW.”
He added that the high management costs of hedge funds also contributed to the pension fund’s decision.
“With hedge funds, you can be certain of the high costs but uncertain about the returns,” he said.
Van Oostveen further explained that, in PFZW’s opinion, hedge funds are no longer a sustainable fit for the portfolio, “given the high remuneration in the hedge fund sector, as well as the often limited concern of hedge funds for society and the environment”.
Last September, Eduard van Gelderen, the new CIO at the €334bn civil service scheme ABP, said the pension fund was not considering divesting its 5% hedge funds allocation, due to the strength of its returns.
However, Dutch pension funds’ hedge fund investments have fallen from 3.7% to 2.7% on average between 2009 and 2014, according to IPE sister publication Pensioen Pro.