The Dutch pension fund for specialty chemicals firm DSM has made a 5% investment in physical gold because of its diversification benefits, it claimed.
The investment in the precious metal, which started October 2020, was the result of a reduction in the fund’s exposure to government bonds by 10 percentage points because of a negative expected return on the asset class.
It has invested half of the proceeds in gold, and the remainer in equities, real estate and infrastructure, the fund announced.
The scheme has invested in gold before. “In the past, pension fund DSM Nederland has invested in gold as part of its exposure to commodities,” according to a spokesperson. An investor that follows the Bloomberg Commodity Index has a 15% exposure to gold, for example.
The new investment in gold follows from an asset and liability management (ALM) study in 2020. “This study showed adding gold to our asset mix had a clear added value because of its diversification benefits,” the fund said.
“As a result, expected risk for the portfolio has been reduced while the expected return has not.”
The pension fund bought its last portion of gold in April to reach its strategic allocation of 5%. The fund’s assets total €7.7bn, suggesting its gold investments amount to €386m. The fund said it invests in physical gold which is stored at a Swiss bank.
Investing in gold is somewhat controversial in the Dutch pension sector. In 2011, regulator De Nederlandsche Bank (DNB) forced the pension fund for glass manufacturers – Vereenigde Glasfabrieken – to reduce its allocation to gold from 13% to 3%. The fund unsuccessfully requested a compensation for this in court.
DSM pension fund said it is aware of the Vereenigde Glasfabrieken case. It said: “Investing in gold fits with the investment policy of the pension fund and within legal frameworks. It is also compliant with DNB’s policy rules for alternative investments.”