The Dutch company pension funds of investment firm HAL (the owner of IPE) and clothing company C&A (Provisum) no longer see added value in investing actively in equities. The benefits do not outweigh the costs, they have concluded.

Holland America Line cruise ship

Source: iStock

HAL (Holland America Line) Investments derives its name from a company that operates cruise ships. The firm used to operate large steamers transporting Dutch emigrants to America.

“A renewed consideration of the returns on the one hand and the costs, the required management attention and the risks of the current active investment strategy on the other hand led to this decision [in April 2024],” said HAL’s pension fund in its annual report for 2023.

The fund manages €138m for some 50 active members and over 1,200 pensioners.

HAL has reinvested the money from its equity portfolio in an index fund managed by Vanguard tracking the FTSE Developed World index, which already served as the benchmark for the return of the scheme’s equity portfolio.

After fees, this return was 20.6% in 2023, and -23.4% in 2022. The FTSE Developed World index, for its part, achieved returns of 21.6% and -17.2%, respectively, in 2023 and 2022.

HAL scheme to close

Employer HAL Investments does not want to convert defined benefit (DB) accruals to defined contribution (DC) capitals in the new system.

This means the firm’s pension fund will close for new accruals by 1 January 2028. HAL is yet to take a decision on the new DC arrangement that will apply from that year.

Below benchmark

Provisum, which invests nearly €1.4bn for some 10,000 workers and former workers of department store C&A, achieved a 19.7% return on its equity portfolio in 2023.

About half of that had been invested actively through mutual funds, with the other half invested in passive instruments. Over the active portion, the return was 18.3%. This is 2.3 percentage points lower than the benchmark, the MSCI World ex Selected Securities Index.

In particular, HAL’s sustainable investments in the actively-managed portfolio underperformed the benchmark. For instance, the investment fund Ninety One Global Environment, which focuses mainly on the energy transition, barely achieved a positive return at 3.2% in 2023.

State Street

“The active equity portfolio aims to outperform the benchmark. In 2023, the board analysed this policy and concluded that the active way of investing has brought too little over the years. Therefore, the board has decided to sell the active part of the equity portfolio and convert the equity portfolio entirely to a passive mandate with State Street,” Provisum said in its annual report.

This decision did not come completely out of the blue. The fund’s investment committee had announced a year earlier that it would review the active investment style in 2023, following dissatisfaction with its performance in the previous five years.

Smaller carbon footprint

Provisum’s passive approach does, however, deviate slightly from the benchmark as it avoids companies with poor scores on climate while instead investing more in companies that perform well on this theme. According to the fund’s board, this reduces the carbon footprint while the risk/return characteristics of the portfolio remain the same.

The switch to passive investment is a trend in the pension sector that has been ongoing for years. One of the most recent converts is civil service scheme ABP, which announced its switch to index investing last year. For years, the Netherlands’ largest fund believed it could achieve higher returns with active investment.

According to IPE’s latest benchmark global asset management research study, IPE Top 500 Asset Managers, published last week, the global share of actively managed assets fell below 70% last year as market-benchmarked passive and indexed strategies have continued to gain ground.

This article was first published on Pensioen Pro, IPE’s Dutch sister publication. It was translated and adapted for IPE by Tjibbe Hoekstra