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KBC eyes bonds, indirect real estate in LDI move

BELGIUM - The €850m KBC Pensioenfonds, the third largest scheme in Belgium, is shifting from direct to indirect real estate and revamping its bond portfolio as part of a liability-driven investing (LDI) strategy, its managing director says.

Edwin Meysmans, who's also vice president of the Belgian Pension Fund Association, said the scheme was in the process of implementing a series of measures following as asset-liability study.

The changes also involve looking at infrastructure and timber. "We're in the course of implementing these measures," Meysmans told the UK & Irish Pension and Investing Summit in Dublin today.

The bond portfolio - previously exclusively government bonds - was being amended to reduce the mismatch between assets and liabilities. It was found that the average defined benefit obligation was 12 years while the bond duration was six years. "We're now bringing the six closer to the 12," Meysmans told delegates.

An issue was timing, he said, adding: "On a strategic level this is what we want to do but corporate bonds are very expensive."

The bond portfolio, currently 36% of total assets, should rise to 40-45% of assets, the ALM study found. "How should we do that - the easy way: sell equities and buy bonds?"  This was very expensive and could lead to higher contributions. Instead an instead an approach dubbed "Booster" is being developed.

"We want to reduce the volatility and the correlation to public equities," Meysmans said.

As for infrastructure, this was "something totally new". "Infrastructure holds the promise that it a bond-type investment but with equity type returns. That is what every pension fund is looking for. Infrastructure provides that. Let's see how that evolves." Timber was also being investigated due to its low volatility and low correlation to public equity.

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