BpfBouw, the pension fund for the Dutch construction sector, is increasing its investments in high-yield bonds and private debt. It has also upped its interest rate hedge to 70%.

The increase in allocation to higher-yielding bonds comes at the expense of its investments in developed market equities.

According to the fund’s implementation plan, a document every pension fund that wants to move to a new defined contribution (DC) pension arrangement has to produce, the asset mix could previously not be optimised because of regulatory constraints.

Where possible and “implementation-wise interesting”, the changes will be implemented before the fund’s planned transition to DC on 1 January 2026, according to the pension fund’s implementation plan, which was published earlier this month.

BpfBouw declined to say by how much it will increase its investments in both categories.

The fund’s director, David van As, spoke of a “limited adjustment” that will be implemented using the fund’s existing managers.

According to van As, the fund currently invests mainly in emerging market debt (4% of the portfolio) within its higher-yielding bond bucket.

Interest rate hedge

The fund’s interest rate hedge will also be amended in the new DC arrangement. Whereas most pension funds will hedge slightly less interest rate risk in the DC system, the opposite applies to BpfBouw.

The reason for this is that the fund has a relatively high percentage of retired participants. Whereas in the current arrangement, a certain percentage of liabilities is hedged, in the new system the interest rate risk of older members in particular will be hedged.

“As a result, the size of the cash flows that need to be hedged increases,” according to the fund.

Anticipating the transition to DC, the construction sector scheme already raised interest rate hedging to 70% in 2023, roughly the percentage in the new DC arrangement.

This provides additional protection for the funding ratio, which is “nice to have”, but was not the purpose of the increase, the fund noted in its implementation plan.

This article was first published on Pensioen Pro, IPE’s Dutch sister publication.

Tjibbe is IPE's Netherlands correspondent. He splits his time between IPE and its Dutch-language sister publication Pensioen Pro. Before joining IPE following a move back to Amsterdam, Tjibbe worked in London for several years writing about fund selection and portfolio construction trends.View full Profile

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