PMT, the €55bn pension fund for Dutch metal workers, has said it will fully divest its €1bn hedge fund allocation in favour of investments in local residential mortgages.

Following an extensive analysis of its hedge fund holdings, the pension fund concluded that an active management style in “markets with many players” no longer matched its investment beliefs.

It also cited the fact the management cost for its hedge fund portfolio accounted for no less than 32% of its entire asset management costs of 0.54% of assets.

PMT said its chief purpose in having a hedge fund allocation – to spread investment risk – no longer carried sufficient weight, particularly in light of the “slightly positive” returns it generated.

The pension fund reported combined returns for alternatives, including private equity and infrastructure, of 2.8% over the first six months of 2014.

At the same time, the metal scheme announced that it would invest €1bn in Dutch residential mortgages, through the Dutch Mortgage Funding Company (DMFCO), established last year.

Inge van den Doel, PMT’s director of asset management, said: “This investment will generate a decent return against an acceptable and verifiable risk.

“Investment through the DMCFO offers pension funds the option to solely invest in the type of mortgages that suit their specific policy requirements.

“Because several pension funds have joined the initiative and combined their requirements, the DMFCO can offer a full mortgage product.”

Meanwhile, PGB, the €16bn pension fund for the printing industry, today announced that it would also invest €500m in Dutch residential mortgages through the DMFCO. 

PGB trustee Rob Heerkens, responsible for investments, said: “Dutch mortgages are an attractive investment, as they carry a limited risk whilst offering better returns than, for example, Dutch government bonds.”

PGB said the €6.7bn pension fund of steelworks Hoogovens had also committed itself to a substantial investment to DMFCO.

By committing to the Dutch Mortgage Funding Company, the pension funds have effectively foregone investing in Dutch residential mortgage bonds, soon to be launched by the National Mortgage Institution (NHI).

Annemieke Biesheuvel, spokeswoman for PMT, said: “By investing through the DMFCO, pension funds can follow their intended risk/return profile precisely, and won’t be dependent on what the NHI would offer.”

The NHI had indicated it would aim at issuing €50bn worth of mortgage bonds for institutional investors.

Topics