The €101bn pension fund for the Dutch metal industry increased its interest rate hedge last year from 52% to 60%. This negatively affected the fund’s return as rates rose over the year. PMT’s return has been lagging the sector average for some time now.

PMT was not the only pension fund to increase its interest rate hedge last year. But most funds that did – such as ING, Shell and IBM – had much higher funding ratios than PMT, which had a funding ratio of just 95% at the start of last year.

PMT’s total return for 2021 came in at just 3.6%, less than half of the average for sector schemes according to pension regulator DNB. The interest rate hedge increase was supposed to protect the fund’s funding ratio against lower interest rates, but instead rates rose.

The pension fund’s accountability body voiced surprise in PMT’s annual report about the interest rate increase, noting that interest rates have been on the rise for a while already.

Strategic shift

PMT’s higher interest rate hedge is part of a strategic shift by the fund, with the aim to reduce risk without lowering the return potential.

Part of the switch has been a shift of 7.5% of assets from its matching portfolio to its return portfolio.

The fund is growing its allocation to real estate by 2.5 percentage points and will increase its exposure to high yield bonds by 5 percentage points to 15% over the next three years.

Like many other large Dutch pension funds, PMT also saw its asset management costs rise strongly, from 0.68% to 0.84%, because of higher performance fees paid to private equity managers.

As private equity returned a massive 51%, the asset class now accounts for 8% of PMT’s investment portfolio.

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