NETHERLANDS - The volume of Dutch pension assets under liability-risk hedging strategies has reached €50bn, according to Cardano Risk Management.

The Rotterdam-headquartered organisation, which is expanding its business to the UK, bases its estimate on interest rate derivatives only, and also excludes the biggest three schemes: for civil servants, health workers and metalworkers.

Max Verheijen, director at Cardano, reckons that 30-40% of this volume was hedged using swaptions trying to catch future upside potential and reduce real interest rate risk.

He added that with rising equity markets and higher interest rates, coverage ratios are picking up again causing the typical Dutch "conditional indexation" to come into play (where inflation indexation is linked to the coverage ratio).

Verheijen said: "This gives rise to the need of protection against rising inflation rates. We therefore already see enhanced emphasis on inflation-linked swaps and bonds."

He emphasised, however, the use of inflation-linked bonds over the use of swaps, estimating the latter's deployment by Dutch funds in 2006 at no more than €5bn. This estimates again excludes the big three.




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