The €1bn Dutch pension fund of construction company Ballast Nedam has simplified its investment portfolio by divesting its direct property, emerging market debt and high yield holdings.
In its annual report for 2016, it said the adjustment had increased liquidity in its portfolio and had made its investment policy more flexible as a result.
The pension fund said it had reinvested the divestment proceeds across the remaining asset classes it invested in.
It pointed out that its 2.7% stake in residential and retail property was too small to have enough of a real impact on its overall result, despite returns of 14.2% and 3%, respectively, last year.
It also cited insufficient scale of its holdings of actively managed emerging market government bonds and high yield bonds as an issue. The holdings were 5% of its portfolio, and had gained 9% and 2.2%, respectively.
Both asset classes had underperformed during the past five years, it noted.
By replacing emerging market and high yield debt with investment grade credit, asset management costs had dropped from 0.6% to 0.1%, the pension fund said.
According to its board, the adjustment to its portfolio had hardly affected returns or its legally required funding.
Raising the risk profile of its investments would not be sensible, because of the pension fund’s relatively low coverage ratio, it said. This stood at 100.9% in March 2017.
The company scheme, which has 710 active participants, 3,830 deferred members and 2,285 pensioners, posted an overall net return of 10.8% on investments.
Its equity holdings (41.3%) gained 11.3%, while fixed income (58.6%) delivered a 8.3% return.
It attributed two percentage points of its total result to the 55% hedge of the interest risk on its liabilities.
In contrast, it lost 0.8 of a percentage point on its full cover of sterling, the dollar and the yen.
The board indicated that it had not yet made a decision about the destination of the existing pension rights, which had remained in the pension fund since pensions accrual was last year transferred to the schemes for the building sector (BpfBOUW) and concrete industry (BpfBeton).
In its latest newsletter, it indicated that a transfer to BpfBouw was not on for the time being, because it would mean a significant rights discount. As at the end of March, BpfBouw’s funding stood at 107.8%.
The Ballast Nedam pension fund’s board also said that negotiations about joining one of the new general pension funds (APF) had not yielded results either, citing costs and continuity as obstacles.
The pension fund’s accountibility body has indicated that it preferred continuing the current scheme.