The pension fund for the Dutch construction sector – Bouw – is planning to increase its allocation to real estate from 16% to 19% by the end of 2023. The fund also wants to up the share of passive investments in its listed equity portfolio.
The €70bn fund has €1.9bn available to invest in predominantly foreign real estate projects.
“Over the past few years we have invested a lot in newly built residential real estate in the Netherlands. In order to reduce concentration risk, we are now looking elsewhere for further investments: in Europe, Asia and the US,” said Erik Hulshof, a trustee of the fund, in an interview.
In the Netherlands, Hulshof is planning to only make additional investments in healthcare-related real estate such as care homes.
Dutch pension funds on average invest 8.6% of their total investment portfolio in real estate. In 2023, Bouw’s real estate allocation would be more than twice this figure. But the fund’s preference for brick and mortar investments does not pose a concentration risk in itself, according to Hulshof.
“This is because we diversify our real estate investments across different sectors and regions. Real estate also provides stable long-term cashflows and changes in valuations [of non-listed real estate assets] happen gradually. We have never had problems answering questions from the regulator about these issues.”
The fund’s roots in the construction industry also partly explain its high real estate allocation, Hulshof admited. “Our members appreciate our commitment to investing in real estate, especially during the credit and euro crises when we continued to invest.”
Switch to passive
A desire to diversify also takes central place in the fund’s equity portfolio. Currently, almost all of the scheme’s equity investments are being actively managed, with some strategies deviating only marginally from the benchmark.
“The plan is to make clearer choices between passive and really active strategies that really add value,” Hulshof said. “We expect to invest about 30% of our developed markets portfolio passively. For emerging markets, we will keep allocating to active managers.”
Having a higher share of its investments in passive strategies should also improve the fund’s liquidity profile, Hulshof noted.
“It’s easy to quickly buy and sell when you invest passively. Liquidity has become more important for us because of stricter requirements for collateral because of central clearing, and because we pay out more in pension benefits than we receive in contributions.”