Dutch pension plans are getting an unexpected performance bonus from liability-driven investing.
The funds have been beating the fixed-income markets thanks to derivatives and overlay strategies, according to 2005 performance data, said Rob van Boeijen, client manager at WM Performance Services, Amsterdam. The difference between pension plans' fixed-income returns and market performance was "remarkable," he said.
"The spread of returns increased significantly compared with last year," according to WM's recently published report.
Larger plans have been using derivatives to increase duration in their fixed-income portfolios as part of a long-term move to more closely match liabilities, in line with new regulations.
The WM Universe of 109 pension plans, with total assets of €224.8 billion ($286.5 billion), showed a 7.2% return from euro bonds and 13.4% from international bonds for the year ended Dec. 31. That compares with a 5.5% return from the Citigroup European Government bonds index and 9.2% from the JP Morgan World ex-EMU international bonds index for the same period.
These benchmarks are made up of bonds with durations of around five years, said Mr. Van Boeijen. Large pension plans are seeking duration more in line with their liabilities, which are around 15 years.
