Sections

European pension funds' role in oil hike unclear

Related Categories

EUROPE - Contrasting views have emerged today about the impact of European pension funds on the current rising oil price.

Newswire reports have suggested that pension funds have played a role as the oil price has risen to almost 50 dollars a barrel. IPE has not been able to find a pension fund in Europe that has admitted to increasing its oil market exposure.

“We’re hearing ‘it’s the funds, it’s the funds,” said one oil industry source. “We’re assuming it’s the hedge funds. I don’t believe the pension funds are going into the oil business.”

An oil market trader, who declined to be named, said that big UK pension funds have started to see the asset class as “legitimised” and “less fringy” - influenced by US and Canadian pension funds’ exposure to commodities and the energy markets.

The trader added the trend had become more marked in the last six months with UK schemes more flexible than those in continental Europe.

The trader stressed that the market in Europe was not comparable to US and Canada, where pension funds see investments in energy products as legitimate rather than high risk.

The trader also said that one of the reasons why pension funds are becoming more open to commodities is the uncertainties connected with the equities markets, but it was still early days to ascertain whether pension schemes would make a strategic, long term shift to the class.

David Morgan, chief executive of the 27 billion-pound (40 billion-euro) Coal Pension Trustees Services said no investments in oil futures had been made.

The Dutch civil service fund ABP said it had reached its ideal exposure to the asset class of about one percent and was satisfied.

Peter Browne, finance director of the Electricity Pensions Services, worth about 19 billion pounds, said it was “unlikely” the fund would invest in oil but explained such a decision would be up to the trustees of the 26 schemes which comprise the fund.

The 58 billion-euro Dutch health care fund PGGM has said its indirect commodities exposure to commodities aims “to increase the spread of the investment portfolio” and “limit its inflation risks”. More than 75% of PGGM’s commodities portfolio consists of energy.

The 13 billion-pound Royal Mail pension fund also said it had not invested in oil futures and there was no plan to do so at the moment.

Markus Metzger, head of the commodity market unit at B-W Bank, told IPE that bigger German pension funds had showed an interest in the asset class, due to its positive correlation to inflation.

Metzger said the issue of exposure to oil and commodities was being talked about more than it was nine months ago. But he added that institutional investors have not yet allocated resources to the asset class as regulation and research in Germany were still in their infancy.

Goldman Sachs, whose commodity index is widely used by funds seeking commodities exposure, last month recommended that investors retain “upside exposure” to energy “from a strategic perspective”. The index returned 7.75% in July.

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2474

    Asset class: All/Large Cap Equities.
    Asset region: Global Developed Markets.
    Size: $150m.
    Closing date: 2018-09-25.

Begin Your Search Here