NETHERLANDS - A&O Services, which runs the €3.2bn Dutch painters pension fund BPF Schilders, has chosen Merrill Lynch Investment Managers to implement a €1.4bn swap and swaptions overlay programme.

"There is a clear trend towards matching the liabilities more closely than in the past in the Netherlands, driven by Dutch regulations," Leen Meijaard, managing director of MLIM in Benelux, told IPE.

"There are three ways to match labilities: either through bonds or mix of bonds and swaps or swaps." A&O Services chose to implement the latter option in which the portfolio is kept intact using interest rate swap overlays or interest rate swaptions, which are options on a swap.

This is the interesting thing about the mandate: They do it all through swap overlays and swaptions. Most of the pension funds tend to do a mix of long bonds and swaps," Meijaard said adding that MLIM currently has about €10bn in liability driven mandates for Dutch clients and "this is a large addition".

A&O's head of investments Raymond Hiltrop said: "MLIM is the partner A&O services have been looking for with regard to an overlay solution for our investment portfolio; they will not only provide us with the right product, but will also guide and train our employees to gain a better understanding and knowledge of these products. 

"What is important for us is that the people managing our overlay understand the needs and culture of a Dutch pension fund."

Earlier this week Barclays Capital said pension fund demand was behind a tenfold increase in inflation-linked swaps activity.

It said the rise was fuelled by pension funds' taking action to minimise their own liabilities.