Pensioenfonds KPN, the €10bn pension fund of Dutch telecom firm KPN, will divest from inflation-linked bonds and has also reduced its exposure to emerging market equities.

The fund will convert its current portfolio of inflation-linked bonds, responsible for some 12.5% of scheme’s strategic investment mix, into regular government bonds with similar risk profiles, it announced in its annual report published this week.

KPN is not the only pension fund to get rid of its inflation-linked bond portfolio. Last January, Pensioenfonds DNB, the fund of the Dutch central bank, also divested from the asset class, which represented some 10% of the fund’s assets. The reason for the sale was completely different, however, according to the pension fund’s president Roeland van Vledder.

“We believed inflation linkers had become less appealing because high inflation for the coming years has now been priced in by markets,” he said.

The category also chimes less well with the fund’s investment policy under the new pension law. “In the new [defined contribution] DC arrangement, we no longer aim to provide explicit inflation hedging,” Van Vledder added.

German retail

Following several years of high inflation, Germany has decided to stop issuing inflation-linked bonds from 2024

Pensioenfonds IBM, another fund that is prone to investing in the asset class, will continue doing so.

“Liquidity in German inflation-linked bonds will indeed start to come down, but that doesn’t hurt us because we have a buy-and-hold portfolio that’s in tune with our liabilities,” said the fund’s director, Wouter van Eechoud.

Less in emerging markets

The fund also announced it has halved its allocation to emerging market equities to 1.3% of its investment portfolio. In its annual report, Pensioenfonds KPN said it anticipated expected returns for emerging markets would not compensate for the higher risk.

Sustainability themes

Just like multi-sector scheme PGB, Pensioenfonds KPN has also identified three focus themes for its investments. Following a member survey, the fund has picked ‘sustainable technology’, ‘sustainable consumption and production’ and ‘climate and biodiversity as its core themes.

The pension fund plans to build its exposure to the three themes through its new private debt portfolio and other alternative investments.

The fund, which wants to build a 5% allocation to private debt over the next few years, has made a first investment in an infrastructure debt fund focused on renewable energy while it is finalising investments in corporate debt and real estate debt.

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