NETHERLANDS- PGGM, the e50bn pension fund for Dutch healthcare and social workers had hired Barclays Global Investors to build a new $200m active inflation-linked bond portfolio.
Piet Roelandt, PGGM fixed income manager, says they are using inflation linked bonds to match the fund’s liabilities closer.
“The advantage of using inflation-linked bonds is that they provide natural inflation protection since their cash flows are uplifted by the rate of inflation. PGGM selected BGI on the back of their long-term inflation-linked bond management experience,” he says.
PGGM’s new fund is benchmarked against the Lehman Brothers global real index and is designed to add between 50 to 100 basis points a year.
The mandate was funded from cash and will be invested in bonds from government and supra-national issuers only. Lehman's global benchmark has being used in the absence of a suitable Dutch equivalent.
PGGM says fluctuations in the local currencies of the issuers that make up the benchmark will cancel out any inflation differences over the long term.
The $200m will be split equally between US and Sterling bonds, while investment in bonds from the remaining three countries - France, Sweden and Canada - will come later.
Marko van Bergen, head of Benelux institutional business at BGI, said: “we are seeing more and more Dutch pension funds who have identified the hedging of inflation risk as a key priority.”
In April PGGM announced its intention to invest in high-yield, emerging market and index-linked bonds following disappointing results for 2001.
For PGGM, $200m remains a fraction of total assets but a spokeswoman say they will review the performance of the new asset class. “We’re starting with a relatively small portfolio and if it works we will extend it.”
Dutch schemes have been taking a greater interest in inflation linked products as a means of hedging against the risk associated with the country’s increasing rate.
Earlier this year MN Services, the Shell pension fund and Inflation Exchange Fund struck a real estate deal giving MN cover by guaranteeing an income stream linked to inflation.
Hoogovens, the e4.5bn corporate fund considered inflation linked strategies in its latest ALM study as a means of enhancing the assets/liability mix.