Pension funds should place more of their assets in cash to prevent a structural increase in interest rates from triggering significant losses on their bond holdings, according to René van de Kieft, chairman at €110bn asset manager MN.

In an interview in Dutch financial news daily Het Financieele Dagblad (FD), he argued that maintaining an extensive cash position would be the only means of avoiding the “trap” of low interest rates, given current market conditions.

Although Van de Kieft acknowledged that keeping cash could come at the expense of returns, he warned that bond losses could be much higher if interest rates began to rise, as they did last week.

MN’s chairman pointed out that, under the new financial assessment framework (nFTK) in the Netherlands, underfunded pension funds are prohibited from increasing their risk profiles by replacing bonds with equities, for example.

“They can adjust their portfolios only marginally, such as by increasing their residential-mortgage holdings,” the FD quoted him as saying. “But building up positions takes time.”

Van de Kieft conceded that rising rates also stood to improve pension funds’ financial positions, as rising rates would reduce liabilities, but he argued that keeping the loss of assets to a minimum should be the priority.

“When interest rates rise again, losses on cash would be much less than the losses on bonds,” he said.

He noted that few Dutch pension funds had deployed cash strategically.

He also argued that the Dutch regulator should give pension funds greater leeway to invest in the real economy, including infrastructure, private equity, real estate and credit.

The FD said the €70m pension fund of oil-trading company Calpam had kept additional liquidity last year.

The Calpam scheme was last year’s winner of the golden award for best Dutch pension fund, granted by IPE sister publication Pensioen Pro.

The FD quoted board member Alexander Foursoff as saying that bank deposits returned more than the scheme’s very short-term bonds.

As of the end of June, his pension fund still kept 20% of its assets in cash, Foursoff said.