NETHERLANDS - Rising oil prices have been the main driver behind strong returns on commodities portfolios at several large Dutch pension funds, their quarterly results have shown.
Civil service scheme ABP – with €171bn assets under management, the second largest in the world – reported returns of 22.7% on commodities in the first quarter.
The Pension Fund for Metalworking and Mechanical Engineering and the industry-wide pension fund for the metal and electrotechnical engineering industry, Metalektro, posted returns in this asset class of 27.5% and 22.8% respectively.
ABP reported an overall yield of 1.6% for the quarter. But a €2.7bn increase in assets was outpaced by a €3.4bn rise in liabilities. ABP said this was due to a transition to accounting its liabilities at market rates, which fell by 0.1% during the period.
Based on the new accounting method – set by the DNB regulator and mandatory from 2006 - ABP’s coverage ratio fell by one percent to 120.3%. The traditional accounting method of a fixed interest rate of 4% would have led to an improvement by 0.9%.
“After excellent returns of 11.5% in 2004, the new investment year had a prudent start,” said Roderick Munsters, ABP’s new director of asset management.
“The returns are mainly due to equity and commodities which gained from the high oil prices.”
Metalektro, also known as PME, returned 2.9%. This caused the funding ratio to rise by two percent to 118%.
The scheme introduced a new Collective Labour Agreement, or CAO, which accommodates the new legislation for prepension and ‘levensloop’. By using the remaining fiscal space from the old arrangements, the fund has managed to keep the retirement age at 62 and the level of payment at the same costs.
“Under the new scheme there will be more pension available at 65. The extra money can be used to stop working at 62,” PME claimed. The new CAO forced PME to immediately abandon its VUT arrangements, which allowed retirement before 60. PME will apply an indexation of 0.39% for pensioners and 1.65% for active members.
The Pension Fund for Metalworking and Mechanical Engineering, or PMT, returned 2.5% in the period. The performance of its fixed income portfolio dropped from 7.1% to 1.7%, and reflected the volatility of interest rates, according to the scheme. It noted a widening gap between the yield on corporate and government bonds. Hedging its dollar exposure hit returns.
“The good overall investment results added €0.5bn to PMT’s invested capital, taking it to €23.9bn. This translated into a coverage ratio of 115% based at a four percent rate, or 119% based on the market value.”
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