Schemes exceeded benchmark by 1.75% - DNB

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NETHERLANDS - Dutch pension funds returned 1.75% on average over their respective benchmarks between 1999 and 2006, pensions regulator De Nederlandsche Bank has said.

According to the supervisor, the extra returns on equity and participations were over 1% on average, while fixed income yielded 2.5% over the portfolio norm - the strategic asset mix based on schemes' individual characteristics.

Pension funds achieved the extra returns on equity mainly in the second half of the surveyed period, partly because negative effects of currency fluctuations had been hedged by then, DNB explained.

In earlier years, repeated drops in equity markets were often followed by periods of relative shortfalls, probably partly because of supplementary purchases of equity to rebalance the strategic asset mix, it added.

DNB attributes the surplus returns on fixed income as of the end of 2002 to schemes extending the duration of their portfolios.

"Decreasing long term interest rates, could also have contributed to the relatively good returns," said DNB.

"Moreover, negative currency effects have been limited by the large weight of eurobonds."

That said, shortfalls affected over 50% of all pension funds so the extra returns gained were seen only on a minority of schemes, particularly larger schemes, the regulator found in its survey.

DNB assumed larger schemes might have more options to profit from market fluctuations through an active approach too.

According to DNB, the spread of extra returns, from equities in particular, was considerable.

"Almost 100 pension funds achieved a relative shortfall of up to 3%. The overall extra returns were mainly achieved by some large schemes," it pointed out.

At the end of 2006, the combined assets of Dutch pension funds amounted to approximately €700bn.

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