NEW YORK -- Dutch pension giant Stichting Pensioenfonds ABP will bring in-house $8 billion worth of passively managed U.S. fixed-income assets within the next year, said Paul Spijkers, president of ABP Investment U.S. Inc.
As a result, Barclays Global Investors, San Francisco, stands to lose a $3 billion passive U.S. corporate debt mandate and Goldman Sachs & Co. Asset Management, New York, is likely to lose ABP's $5 billion in U.S. mortgage-backed securities.
The money managers were made aware ABP was considering bringing the mandates in-house when they were first awarded in mid-1998, said Mr. Spijkers, who runs the U.S. investment arm of the Heerlen, Netherlands-based pension fund for Dutch government workers. Neither Goldman Sachs nor BGI would comment.
The E137.5 billion ($147 billion) plan is busy beefing up its fixed-income capabilities in the United States and recently hired Arnold Shapiro, previously of UBS Brinson, to spearhead the fund's fixed-income activities.
"We have not yet clearly defined the exact consequences over time for the portfolios under management," said Mr. Spijkers.
New money allocated by the fund to fixed income will be run in-house, he added.
The pension fund likely will increase its current $11 billion invested in U.S. fixed income to $15 billion in 2000 and hit $25.5 billion in 2002.
Its goal is to invest 30% of its now $85 billion fixed-income portfolio in the United States.
By then, it hopes to be able to manage in-house almost 90% of the U.S. portion of the fund's fixed-income portfolio.
The fund intends to develop an internal active management capacity once its newly established team of money managers gains experience working together running the passive mandates. But specialist portfolios such as emerging-market and high-yield debt or non-investment-grade instruments will be run externally.
BlackRock Inc., New York; Goldman Sachs Asset Management; Western Asset, Pasadena, Calif.; Pacific Investment Management Co., Newport Beach, Calif.; J.P. Morgan Investment Management Inc., New York; and T. Rowe Price Associates Inc., Baltimore, between them manage $3 billion in assorted active U.S. fixed-income mandates for ABP.
In the past two months the firm hired former Brinson staffers Rob Appel, Mark Condon, Anne-Marie Griffith and Greg Patterson. Messrs. Appel and Shapiro are set to launch a $300 million mortgage-backed securities portfolio next month.
ABP is still looking to hire credit analysts and additional administrative and money management staff, Mr. Spijkers said.
Early last year the fund made a strategic decision to increase its exposure to U.S. fixed income to improve investment returns. The group largely will steer clear of Treasury bills and instead invest in investment-grade corporate bonds and mortgage-backed securities. The lack of liquidity in the European credit markets was a key factor behind increasing the allocation to the U.S. market.
"Last year we revised our fixed-income strategy to focus on global spread products," said Mr. Spijkers.
"The way to realize excess return in fixed income is either to take a view on interest rates and anticipate that, or invest in securities that have excess returns over U.S. Treasuries."
The U.S. credit markets seemed a natural step as anticipating moves in interest rates is difficult and the European spread markets are still relatively small.
"We decided to allocate a substantial part of fixed income to the United States to tap into the existing and liquid segment of the spread market" made up of bonds that offer higher returns than U.S. Treasuries, said Mr. Spijkers.
"We will create alpha relative to U.S. Treasuries by making strategic allocations to mortgage-backed securities and corporate credit."
Ideally, 60% of the allocation to U.S. fixed income will be invested in mortgage-backed securities and 40% in corporate bonds. Mr. Spijkers aims to outperform U.S. Treasuries by 75 basis points to 80 basis points, after hedging the exposure back into euros
