AMSTERDAM — Dutch pension plans are poised to scoop up longer duration bonds and interest rate swaps to fend off a one-two punch of new accounting and pension regulations.
Funds also are expected to hike their allocations to fixed income and look farther afield for fixed-income investments.
Both the new international accounting standard, IAS 19, which takes effect for publicly quoted companies in January, and the new supervisory framework, due January 2006, require pension plans to value liabilities at market rates.
Until now, Dutch pension plans were allowed to value liabilities at a discount rate of 4%.
Consultants and money managers active in the €450 billion ($580.9 billion) Dutch pensions market expect plans to match liabilities with assets by buying bonds with longer durations, making greater use of interest-rate swaps and investing in zero-coupon bonds. Fund executives say they are exploring the options and debating the merits of each approach.
As a result, up to €180 billion in pension assets over the next few years could be funneled to a broad range of bonds with durations of 15 years or more, according to Jeroen Tielman, chief executive officer at independent consultant FundPartners, Laren.