The Amsterdam-based Dfl155m (e70m) pension fund of the United Biscuits (UB) group began a gradual euro transition process well in advance of the single currency, conscious of the possible outcomes of Emu and in response to advice and asset liability research by its investment manager.
The fund, with 650 retirees, 350 deferred pensioners and around 1,000 active members, is the product of the buy-out in 1990 by UB of Dutch company Cerkada, with the overall Dutch entity also comprising the Crocky Chips group.
The group’s assets have been outsourced to Dutch investment managers Robeco since 1984. Robeco has autonomy over the assets after annual guidelines have been laid down by the scheme management committee.
Jan Kaptein, secretary to the fund, explains how, on the advice of Robeco, the fund carried out its euro preparations. “Prior to the euro we held no shares, but were heavily invested in long-term bonds. And in the last five years we have seen a large number of Dutch fund switches to equities in search of performance, which we did similarly. In 1997 we increased our equity holding from 25% to 40%, as the result of an asset liability study in 1996 by Robeco, and with a view to a euro preparation strategy.”
Kaptein adds though that the actual euro transition itself was done in small stages. “We made our first moves at the end of 1997 when we decided to shift into external bonds, both in Europe and globally, pre-empting the euro shift. Then when the euro arrived all Dutch bonds switched to euroland – so the situation as it stands at the moment is that we have Dfl10m in bonds outside Europe and about Dfl65m in European bonds, which for example could be in Belgium or Denmark to allow us to play in the market a little.”
Kaptein says the philosophy behind the switch was to take advantage of the inherent differences in the overall post-euro European market and allow Robeco to pick up extra margins when moving between countries, but without the currency risks.
“This kind of strategy is now much easier and there is a slight diversity advantage,” he adds.
The gradual approach, Kaptein says, was implemented to ensure there were no sudden moves or negative effects from the Dutch stock market.
“For equities we allowed Robeco a post-euro free hand to invest in euroland UK, US and Japanese equities. We took a country approach and listened to Robeco’s investment opinions on Japan, for example, where we currently hold a small share portfolio, and Spain where we have a small holding.”
The fund’s current equity portions are around Dfl40m in the domestic market and Dfl35m outside the home country.
Kaptein explains that the fund’s healthy 15-year relationship prompted the decision to go with Robeco for euro transition. “Of course, you always look around to see what else is on offer, but for a fund of our size it is more sensible to stay with what we know, because we don’t have the finances to absorb any problems should they arise. Overall I’m very happy with the transition, because we did not know what would happen on the AEX, and it has been extremely flat since the start of the year. Also Dutch bonds are only yielding 3.75% and this is very low, so there was a need to go elsewhere for returns.”

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