Blue Sky Group, the fiduciary manager of about €13.9 billion ($19.6 billion) largely on behalf of KLM Royal Dutch Airlines pension funds, is considering doubling its low-volatility equity strategies to about €500 million, according to Ramon Tol, fund manager-equities.
A search for low-volatility equity managers is likely to be launched in November or December, and managers are scheduled to be appointed within the next 12 months, Mr. Tol said.
Funding likely will come from rebalancing the equity portfolio, but a final decision has not been made, Mr. Tol said in an interview. Blue Sky already invests in two low-volatility equity strategies, each totaling about €125 million, with one using a maximum diversification approach and the other, minimum variance, in an effort to reduce downside equity risks.
Fund executives are also considering other “defensive alternative equity strategies like the global equity risk parity or global high-dividend yield,” Mr. Tol said.
An allocation of 15% to 20% to low-volatility equity strategies would be required to have a meaningful impact on risk and risk-return ratios, said Imke Hollander, Blue Sky’s equity strategist. Blue Sky is planning to conduct further research, and board and trustee approval would be needed for any allocations above 10%, she said.
“Our clients are searching for more stability in the (pension funds’) solvency ratios, without needing to move out of equities,” Ms. Hollander said, “and that makes these types of strategies very interesting indeed.”