The mighty Dutch pension fund ABP has been permitted to invest in emerging markets, since 1996, and is now in the midst of constructing an emerging markets portfolio as part of its diversified asset allocation approach.

Robert Coomans, head of external management at ABP, says: At that point in 1996, we focused on Asia and in the second instance on Latin America by looking for an external manager. We felt that you could not do both immediately."

The mandate was given to Santander Investment last year, with the fund now preparing to award a second mandate.

Besides these active mandates, the fund has positions in Latin America through its indexed global emerging markets portfolio. The currency risk of these investments is incorporated, at least in part, in the asset allocation decision. However ABP hedges the currency risk associated with significant investments internally.

"The currency risk is part of the total allocation but in addition in ABP's case we are doing currency hedging on an internal basis," says Coomans.

"We look at how much our exposure is in the particular market, then ask if it is possible to hedge it and what the cost will be in comparison with the total invested."

ABP therefore does some hedging on Latin American markets, but adds that this has been limited due to the small amounts invested."

Topics