The €4bn Dutch sector scheme for the merchant navy (BpfKoopvaardij) is to start investing in private residential mortgages.
It intends to invest 3% of its portfolio – €120m – in the asset class and wants to construct its portfolio during the course of this year.
The pension fund said it had opted for residential mortgages because of the potential of additional returns without unacceptably higher risks.
According to Rajesh Grobbe, the scheme’s manager of finance, risk and management, the pension fund expected a yield of 2.3%, which fits its matching target.
BpfKoopvaardij described mortgages as a “solid investment”, that could generate stable cashflows and contribute to the diversification within the investment portfolio.
“We see the spreads widen for the long term,” Grobbe added.
The mortgages investment comes at the expense of the scheme’s allocation to non-euro-denominated government bonds.
At the end of 2016, BpfKoopvaardij had invested 30% in long government bonds, predominantly issued by Germany and the Netherlands, and more than 10% in government bonds of non-euro countries. The allocation had generated more than 8% and 2.4%, respectively, during 2016.
BpfKoopvaardij’s stake will be run in a discretionary mandate by manager DMFCO, which invests in mortgages issued by Munt Hypotheken and offers pension fund clients individual portfolios.
The portfolios enables pension funds to make their own decisions about the investment, including the duration of the mortgages, according to Grobbe.
The merchant navy scheme made clear that it would accept the relatively high implementation costs of the mortgages portfolio and the discretionary mandate.
It pointed out that the initial costs of 0.55% would drop to 0.28% on average after 10 years, adding that the expected returns would justify the extra costs.
BpfKoopvaardij indicated it had the option of extending its mortgage investments in the future.
“However, this depends on the developments in the market and the conclusions of the coming asset-liability management study,” said Grobbe.
At the end of 2016, BpfKoopvaardij had 5,455 active participants, 17,785 deferred members and 31,130 pensioners.