PGGM, the e50bn pension fund for Dutch healthcare and social workers had hired Barclays Global Investors to build a new $200m (E204m) 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.”
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 countries – France, Sweden and Canada – will come later.
PGGM says: “We’re starting with a relatively small portfolio and if it works we will extend it.”