Blue Sky Group, Amstelveen, Netherlands, which manages KLM Royal Dutch Airlines' e10.5 billion ($12.3 billion) in pension assets, is considering an internally managed swap overlay strategy to extend the duration of its inflation-linked bonds to 15 years from about 10 to 12 years, Fons Lute, CIO, said in an interview. Inflation-linked bonds comprise half of Blue Sky's overall fixed-income portfolio, or about e2.25 billion ($2.64 billion).
"It is such an important strategic product, so we'd like to handle it ourselves," said Mr. Lute, adding that a decision is expected by the end of the year.
Swap overlay strategies are increasingly gaining favor, particularly in the United Kingdom and the Netherlands, where mark-to-market accounting standards have pushed plan sponsors to improve asset-liability management. FRS 17 is already in effect in Britain, while in the Netherlands, Financieel Toetsingskader is to be implemented in January 2007.
