AMSTERDAM -- It may be a little late in the year for spring cleaning, but a number of large and medium-sized Dutch pension plans are busy with asset-liability studies.
* The E3.4 billion ($3.23 billion) Stichting Pensioenfonds Akzo Nobel NV plan expects to complete an asset-liability study by the second half of this year to enable it to launch a defined contribution component to its plan early next year;
* The 29 billion guilder ($12.6 billion) Stichting Bedrijfspensioenfonds voor de Metaal en Technische Bedrijfstakken is due to conduct an asset-liability study in August;
* The 1 billion guilder Stichting Pensioenfonds Origin is finalizing its asset-liability study;
* The 1 million guilder Stichting Pensioenfonds Wolters Kluwer pension plan recently completed one;
* The 1 billion guilder staff pension plans of the Centrale Suiker Maatschappij expect to launch an asset-liability study later this year.
Analysts at WM Co., Amsterdam, expect Dutch plans to continue to scoop up equities over the next few years. Recently published figures from WM show that for the first time, Dutch pension plans, on average, allocate more money to equities than to fixed income.
But while some plan sponsors intend to increase their equity positions following their asset-liability studies, others are concerned their long-term liability profiles do not justify the additional risk from increased equity positions.
Average allocations to equities by Dutch pension plans could reach 55% over the next five years, said Pepijn Heyns, marketing manager for WM. He expects to see demand increase for European, Japanese and emerging market equities.
According to year-end data, Dutch pension funds had an average equity allocation of 47% of fund assets and an average fixed-income allocation of 43%.
But there is a wide range of positions around the average.
The Akzo Nobel pension plan holds 35% of its fund in equities and is unlikely to increase that position, said Bob Puijn, finance director for the Arnhem-based plan. "With the risk profile we have at the moment, we are looking at the maximum holdings in stocks."
However, much will depend on the outcome of Akzo Nobel's asset-liability study, he added.
Fixed income accounts for 60% of the fund's assets, with the balance invested in property.
The plan's European equity and fixed income portfolios, which account for two-thirds of the assets, are run in-house. The plan may hire more external managers, but no decision will be made until the asset-liability work is complete.
"Then we will know the type of risk profile and the rules for the new defined contribution plan. And then we can decide on the investment profile," Mr. Heyns said.
At this stage, the BPMT plan for metal workers also has a relatively low exposure to equities -- only 35% of the fund. But a gradual increase in exposure of 3 percentage points to 5 percentage points over the next few years is likely, said Roland van den Brink, head of investment policy at BPMT's investment manager, MN Services, Rijswijk. He justified this cautious approach, saying almost 8% of the fund is invested in "junk bonds" and emerging markets debt, which have characteristics and volatility similar to equities.
Fixed income accounts for 50% of the BPMT fund, with the balance of assets invested in real estate.
The BPMT plan is due to review its asset allocation in August, and it's likely that it will increase its exposure to equities, said Mr. van den Brink. The plan also may look for external specialists to manage the increased equity holdings, but nothing can be confirmed until the pension fund board agrees to any asset allocation changes, he said. External money managers manage around 70% of the plan assets; pan-European assets are managed in-house.
Equity cutback possible
The Origin defined benefit plan may look at slightly reducing its equity positions, hiring passive managers and investing in a wider range of corporate bonds once its board approves any asset allocation changes, said Rene Upperman, managing director for the Utrecht-based fund.
The pension fund for employees of information technology company Origin BV, Eindhoven, has not conducted an asset liability study for four years, and the plan sponsor now is required to do so by local legislation. Any new searches or changes to current asset allocation would be announced in early July, he said.
Origin's 800 million guilder defined benefit plan is invested 55% in equities and 45% in bonds. All the money is managed externally. Kempen Capital Management, Amsterdam, runs a 110 million guilder Dutch equities portfolio; Aegon, The Hague, runs a 60 million guilder Dutch bonds mandate; and Schooste Poort BV, Eindhoven, manages the rest of the plan assets in a balanced mandate. These asset managers and Frank Russell Co., Amsterdam, manage funds for the 200 million guilder defined contribution plan.
The defined benefit plan may cut its equity positions to around 50% of assets in order to reduce volatility in premium payments, Mr. Upperman said.
The rapid growth in equity markets during the last quarter of last year pushed the plan's allocations slightly over the current 53% target. The plan is relatively young and, like many technology companies, subject to high turnover among its younger members.
The 700 million guilder Stichting Pensioenfonds CSM Suiker and the 300 million guilder Stichting Pensioenfonds CSM Nederlands, both based in Amsterdam, are content to maintain their current 50/50 split between equities and fixed income, said Nico Schaftenaar, manager of the two Amsterdam-based schemes for the employees of Centrale Suiker Maatschappij, a food company.
"With the present height of the equity market, we would not be surprised if there was a fall in the market. That is the main reason we will not actively increase our equity positions at the moment," he added. However, at the end of this year, the CSM schemes are due to conduct a five-year review of their external managers, Kempen Capital Management, ABN Amro Bank and Lombard Odier Investment Management Services, all of Amsterdam. The current arrangements may change, said Mr. Schaftenaar.
The Amsterdam-based Wolters Kluwer pension plan formally has increased its equity allocation by 5 percentage points, to 35% of the assets. But there was no need to allocate more funds to meet this position as last year's strong growth in equities already had pushed the equity holdings to 35% of the fund, while the asset-liability study was being conducted, according to Kees van Schie, managing director.
Fixed-income investments account for the lion's share of the assets at 65% of the plan, he said. All the assets are managed externally by passive managers Barclays Global Investors, Amsterdam, and State Street Global Advisors, Boston.
The gradual shift to equities by Dutch pension plans, as highlighted in recent research by WM, represents a long-term structural shift away from bond markets, said Ken Fraser, WM's head of global performance measurement.