The €3.4bn pension fund of Dutch technical research institute TNO plans to increase its private equity investments from 4.4% to 7.5% of its portfolio during the next two to three years.
In its annual report for 2017, it said it had appointed several new managers to achieve this goal, which would involve annual investments of approximately €80m.
Hans de Ruiter, the scheme’s chief investment officer, said that the new investments – through Gilde, Vector and Strategic Value Partners – would be largely funded by the proceeds of existing private equity holdings.
He added that the pension fund had hired consultancy Wilshire to select, monitor and report on unlisted equity investments.
Last year, the scheme’s private equity holdings lost 3.8%, but in 2016 the allocation returned almost 13%.
The Pensioenfonds TNO said that it had reduced its exposure to US high yield bonds by 1.5 percentage points, in favour of local currency emerging market debt.
The company scheme also cut European equity from 10.4% to 5.8% of its portfolio, in favour of US and emerging markets equities.
It appointed Robeco and Quoniam as smart beta managers for a new 8.8% allocation to worldwide equity investments, which would come at the expense of regional holdings.
TNO also added listed property as a new asset class, aiming for a 2% allocation in line with its existing holdings of unlisted real estate.
The pension fund reported an overall result of 3.6% for 2017, including a 1.2% profit from its currency and interest rate hedges.
Its equity holdings – 24.2% of the portfolio – delivered 9.8%, while its property portfolio produced 4.4%.
Fixed income (67.2% of TNO’s investments) had generated 0.8%, with emerging market debt gaining 3.4% US high-yield bonds lost 4%. The scheme’s exposure to residential mortgages gained 4.7%.
The pension fund had an overlay for its emerging market equity investments, targeting 25% of best-in-class companies ranked on environmental, social and corporate governance criteria. It said it planned to extend this overlay to developed markets stock.
By the end of 2017 the TNO scheme had already excluded 10 countries under UN sanctions as well as 45 firms from its investment universe, including manufacturers of controversial arms and companies that derived more than 5% of their turnover from tobacco.
It said that, after running several scenarios for its own future, it saw enough reasons to continue as an independent pension fund, citing the current input of the social partners in the pension plan, its controls on costs and its service level. TNO said it had decided against merging with a sector scheme or joining a general pension fund.
The Pensioenfonds TNO reported administration costs of €308 per participant. It spent 0.78% in total on asset management and transactions.
At June-end, its coverage ratio stood at 114.8%. The scheme has 4,260 employees, 6,320 deferred participants and 5,355 pensioners.