Dutch civil service scheme ABP’s move to ESG-screened index investing has fallen short of expectations, with its developed markets equity portfolio underperforming by 1.7 percentage points in 2025.
The €530bn pension fund said in its annual report that the first full year of operating its tailor-made index did not deliver as anticipated, adding that the switch to index investing has “not yet yielded what we expect from it”.
ABP decided in 2023 to move largely to index investing, citing a lack of added value from active management across most asset classes.
Last year marked the first full year of the fund’s newly constructed developed markets equity index, which represents around 80% of its listed equity allocation.
The index is based on ABP’s own ESG criteria and excludes several hundred companies, mainly in the US, including Alphabet (Google), Meta (Facebook), Tesla, Caterpillar and Booking.com.
ABP declined to comment further on the reasons for the underperformance, although the exclusion of Alphabet appears to have been a significant factor. The technology company returned 65% in 2025 amid strong investor optimism around artificial intelligence.
Despite the weak start, ABP said it remains confident the portfolio will deliver “a return in line with the broad market index” over the longer term.
Across its equity portfolio, ABP reported a 6.2% return, compared with 7.4% for the benchmark.
The fund said the shortfall was not only driven by the index strategy, but also “partly the result of a lagging performance during the year in the more concentrated active equity strategy”.
It declined to name the external managers responsible for the underperformance.
Emerging market equities were a notable bright spot, with ABP outperforming the benchmark, delivering a 20.2% return versus 18.3%.
“Emerging markets often do relatively well when the US dollar weakens and the US policy interest rate falls,” a spokesperson said.
Private market returns were broadly weaker. Commodities returned 10%, supported by rising gold prices, while private equity posted a -4.2% return.
“Private equity still faces headwinds from the companies that were bought relatively expensively at the end of the long low interest rate period in the years 2019-2021. It takes longer before these companies can be sold at a profit,” the spokesperson said.
In fixed income, returns ranged from -6.7% for long-term government bonds to +4.5% for emerging market debt.
Overall, ABP reported a total portfolio return of -1.6% for 2025, down from 8.4% the previous year.
The shift towards passive management contributed to a modest reduction in asset management costs, which fell from 0.54% to 0.48%, primarily due to lower performance and management fees paid to external managers.
