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NETHERLANDS – The way to position investment policy amid historically low long-term interest rates has become a key question at Dutch pension funds, IPE has learnt.

It comes as Morgan Stanley has released research estimating that long-term interest rates are close to their lowest levels in 300 years, at least in the UK. It argues they are close to a percentage point below sustainable levels.

Industry sources say responding to the low rate environment is the number one topic right now in the Dutch pension community, even above asset allocation. Pension funds such as health care scheme PGGM and civil service fund ABP have declined to discuss the matter with IPE.

Pieter Omtzigt, a Dutch MP who is pensions spokesman for the Christian Democrats, has told IPE that within the pension industry “no-one’s really looking at what low interest rates mean – I mean the abundance of capital”.

Dutch schemes are regularly seen as being forced into buying long-duration bonds as a result of new rules about how they measure their liabilities. But sources have told IPE that this issue has been “over-hyped”.

Some observers fear Dutch schemes are at the mercy of speculators such as hedge funds, although others argue that the managers of such schemes are too skilled for that to happen.

“Exceptionally low interest rates have pushed investors towards certain forms of investment and have led to a strong increase in prices in certain asset markets,” European Central Bank executive board member Tommaso Padoa-Schioppa said in a recent newspaper interview.

Morgan Stanley’s analysis did not take into account the regulatory and accounting changes that it said “might have generated a shift in preferences from pension funds towards long-duration bonds”.

It said: “This could be a significant factor – though the fact that the decline in real rates has been a worldwide phenomenon, while rebalancing of pension fund portfolios is of potential significance in only some countries, should make one wary.” It said the actual scale of rebalancing towards long-bonds has been small.

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