NETHERLANDS - Despite their recovering financial buffers, Dutch pension funds have started venturing into direct gold investments, according to investment consultant Mercer.

Dennis van Ek, investment adviser and spokesman for the Dutch office, told IPE the buffers have started to recover again, as cover ratios, which had dropped 15% to 122% in March, are now again at 129%.

Nonetheless, Van Ek has spotted a trend among his clients suggesting pension funds are trying to build protection into their portfolio against dramatic movement on the stock markets - one of which is direct physical investments in gold, rather than via exchange-traded funds (ETFs).

He added however: "The portfolio protection covers various asset classes, gold can be one of these - unless it fits with the vision of the pension fund management."

According to Mercer's data, around 55% of pension funds hedge against interest rate movement, though for the remaining negative movements still "hurt", says Van Ek.

Mercer looks daily how the cover ratio of 94 of around 700 Dutch pension funds develops. One in eight pension funds, compared with one in three in March, are currently below the reserve requirements of the Dutch central bank, DNB.

Van Ek says: "If the Amsterdam Exchange (AEX) dropped by 20%, to around 400 points, around half of the pension funds would have reserve shortages. If the AEX increases by 100 points none of the funds would have a reserves shortage."

He added: "We have seen the recent downward market movement has caused unrest, among pension fund managers too."

To counteract such extreme movements, Mercers has observed pension funds are beginning to reallocate European and American equities to emerging markets, as well as to sector funds, such as energy, and raw material funds, alongside hard and soft commodities.

Other policy actions under consideration according to Van Ek are broad diversification, and infrastructure relating to investment in the chain of commodities, for instance in Russia.

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