The value of Dutch pension funds’ real estate investments in 2022 fell by €14.6bn, according to data published by regulator DNB.
Last year, Dutch pension funds invested €158bn in real estate or 11.1% of their assets but recorded an 8.6% decrease in value at the end of the period.
Listed real estate – which accounted for €43bn of Dutch pension funds’ total real estate investments – took the biggest hit as it fell 22%, while losses in direct real estate and international real estate funds were more muted, DNB data showed.
According to DNB, losses on listed real estate happened mostly in the first quarter of the year and peaked in the second quarter. Losses were mitigated by exchange rate effects, especially by the rising dollar.
Stripping out the currency gains, losses on listed real estate would have amounted to 26.5%.
Losses on unlisted real estate were limited to just 1.5%, as investors remained hesitant to adjust the value of assets despite the rapid rise in interest rates, DNB said.
The real estate losses were actually limited compared to the negative returns on other asset classes.
Equities for instance lost €46bn as it fell 18.3%, due to the sharp rise in interest rates. Bond investments suffered even more, losing 22.4% or €141bn during the period. The sharp rise in interest rates also led to a record €165bn loss on interest rate derivatives.
In total, Dutch pension funds suffered a €404bn loss on their investments in 2022, equivalent to an overall return of -21.4%.
Still, the impact of this on the financial position of pension funds was limited, because the rise in interest raTe also caused liabilities to decrease in value by €375bn.
Because most pension funds do not hedge 100% of their interest rate risk, their funding ratios even increased from 110% on average to 118%, according to consultancy Aon.
This article appeared originally in Pensioen Pro, IPE’s Dutch sister publication. It has been translated and adapted for IPE by Tjibbe Hoekstra.
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