The five largest pension funds in the Netherlands, which together account for about 60% of Dutch pension assets, invest significantly more in private equity and real estate than other funds. But the extra returns they make from taking on more investment risk are nullified by the funds’ relatively low interest rate hedges.

As a result, the large funds end up with similar total returns as their smaller counterparts, retired professor Jaap Bikker and Jeroen Meringa, a researcher at the Dutch central bank (DNB), concluded in an article published today on the Dutch platform for economists ESB.

The researchers based their conclusions on DNB data between 2007 and 2022.

These figures show that ABP, PFZW, PMT, Bpf Bouw and PME, the country’s five largest pension funds, did not on balance record higher net returns than smaller funds.

In the period between 2012 to mid-2022, returns were nearly 6% per year. The researchers divided the funds into five size classes. The differences in returns between the largest and smallest funds are negligible, according to the authors.

Unexpected outcome

That the returns of pension funds end up being so closely aligned is an unexpected outcome, according to the researchers. After all, pension funds use wildly different investment styles.

The largest funds put more money into risky categories, such as private and listed equity and real estate. Moreover, they manage to achieve higher than average returns on those investments.

According to the researchers, this is due to better analysis and risk management capabilities at the larger funds.

On the other hand, small funds are more conservative than their larger counterparts and invest more than average in fixed income securities. Here, they also achieve returns twice as high as the large funds.

The reason is that large funds have lower interest rate hedges than smaller funds. This has cost large funds dearly for many years, when interest rates were constantly falling.


Another less important cause of the barely perceptible difference between the returns achieved by large and small funds is that the former invest more in commodities and hedge funds, asset classes that small funds tend to avoid.

Returns on commodities and hedge funds have been low or even negative in recent years. Smaller funds were not bothered by this as they tended to avoid these types of investments.

“All in all, over the period 2012-2022 Q2 […] large funds forfeited all the advantage they had gained by investing more in higher-yielding securities and taking advantage of their large scale and their analytical departments,” according to Bikker and Meringa. “On balance, large funds do no better than small ones.”


The authors also examined whether large funds took on more risk than smaller funds – where risk is expressed as the degree to which returns fluctuate.

According to investment theory, this approach can lead to higher returns without necessarily making large funds better investors. The researchers concluded that the difference in risk taken is too small to explain outperformance.

The researchers applied the investment returns of the five largest funds to the smaller funds to see what the effect would be. In that case, the total investment returns of small funds would have increased by more than 11%, or nearly €10bn a year.

Viewed this way, further consolidation in the pension sector could lead to higher net returns, the researchers noted.

“These simulations show that large sums of money are involved here. But because the policy of lower interest rate risk hedging by large pension funds has backfired, it is difficult to draw a clear conclusion,” they said.

This article was first published on Pensioen Pro, IPE’s Dutch sister publication. It was translated and adapted for IPE by Tjibbe Hoekstra