NETHERLANDS – PGGM, the €60bn Dutch health care scheme, says it has increased its allocation to commodities due to a new asset mix.

The fund’s head of commodities, Jelle Beenen, told a conference today that it has increased its allocation to commodities from 4% to 5%. The move started at the beginning of the year, Beenen told IPE

PGGM, the second largest Dutch scheme, made its first commodities allocation in 2000, committing $2bn. Beenen said that at that time the investor sector of the market was worth $6bn.

A 4% allocation implies a “much larger risk allocation”, he observed - as commodities entail higher volatility than allocations to more traditional asset classes.

The investment followed a period of negative returns in both equities and commodities, but PGGM did not regret its strategic choice, according to Beenen. He conceded that timing was a key factor in commodity investments.

“Adding commodities to a 30:55:15 equity, fixed income, real estate mix turned out to be very advantageous,” Beenen stated in his presentation.

Earlier this year, Roderick Munsters of fellow Dutch scheme ABP hailed the fund’s 18.8% return on commodities in 2004. “Let’s be honest, we’ve been lucky. I wouldn’t dare betting against commodities as an asset class,” Munsters – the former investment chief at PGGM – told the National Association of Pension Funds.

PGGM uses commodities futures or derivatives of these futures and cash investments in euro as collateral. But it makes no investment in physical commodities. Beenen told IPE that the fund found it essential to “focus on the picture”.

PGGM’s investment is done through the Goldman Sachs Commodities Index and the AIG-Dow Jones indices. “Many other indices did not satisfy all of PGGM’s requirements,” he said, explaining that the fund places great store on transparency and accountability.

He explained that PGGM preferred energy because, although more volatile, it offers higher diversification and served as the “best hedge” during geopolitical crises. PGGM sees its higher energy weighting as a strategic choice, based on a long-term analysis.

He said using short horizons could “very risky”.