Dutch medical consultants' scheme reduces risk exposure

SPMS, the €9bn pension fund for medical consultants, has reduced its risk exposure by decreasing its strategic equity portfolio from 34% to 26%, as well as by increasing the interest hedge of its liabilities. 

In a newsletter to its participants, the pension fund said that an asset-liability management study has shown that it could also achieve its indexation target of at least 3% with less risk.

SPMS, which reported a funding level of 123.8% at July-end, said it had replaced its divested equity holdings with government bonds. As a result, its strategic fixed income portfolio increased to 53% of assets.

In addition, the scheme’s CIO Marcel Roberts had also raised its interest hedge from 70% to 78%.

“As a consequence, interest rates changes can hardly affect the funding ratio, increasing the probability that our participants are to receive the pension they expect,” Roberts said.

A reduction in risk by Dutch pension funds is currently quite rare, as many schemes are keen to increase their investment risk to boost returns.

According to Roberts, the pension fund’s ample funding was the drivinf factor behind its decision to reduce risk.

“Because interest changes are difficult to predict, whereas their impact can be significant, we have opted to increase the interest hedge,” he said.

In contrast, many other pension funds have lowered the interest hedge, as they expected that interest rates were more likely to increase.

The pension fund posted a 25.3% return over the course of 2014, including 13.1 percentage points attributed to its interest hedge through long-duration swaps.

The scheme’s fixed income holdings produced an overall result of 19.4%, with inflation-linked bonds and euro-denominated government bonds yielding 23.2% and 27%, respectively.

Emerging market debt delivered no more than 11%, thanks to the depreciation of local currencies relative to the euro, according to SPMS.

Equity holdings in the US, Europe and emerging countries generated 25.5%, 7.4% and 10% respectively, it said.

The scheme’s 9% hedge funds allocated returned 2.9%.

The medical consultants’ scheme said it had introduced real estate debt as a sub asset class within its 10% property portfolio.

He declined to provide details about expected returns, but indicated that the yield was supposed to match the overall benchmark for its property portfolio of 6.5%.

The pension fund for medical consultants said it incurred administration costs of €544 per participant and spent 0.72% on asset management, including 0.16% for transactions.

SPMS has more than 8,000 active participants, 1,170 deferred members and 6,590 pensioners.