The pension funds for the Dutch metals and technology industry, PME and PMT, underperformed their benchmarks last year due to their relatively high exposure to alternatives, including private equity and real estate.
PME, with €54bn in assets under management, reported a return of 17.1% on its portfolio of listed equities, beating its benchmark by 1.3 percentage points. However, the total return of the fund’s return portfolio, at 9.5%, lagged its benchmark by 2.5%.
This could be explained by low returns on private equity (3%) and real estate (-10.5%). The fund had just increased its allocation to the latter category to 10% of its assets.
“All in all, 2023 was a difficult year for our real estate portfolios, resulting in a negative return of 9.8% for the Dutch real estate portfolio and -11.5% for the international portfolio,” the fund commented.
Real estate investments, especially in the office and retail sectors, have been struggling due to sluggish demand and rising interest rates.
The sharp rise in interest rates over the past two years made itself felt too in infrastructure and forestry, where increased mortgage rates and a decline in new construction projects are leading to lower demand for timber.
Nevertheless, PME did achieve positive returns on these investments, recording returns of 5% and 8%, respectively.
Overallocation to private equity
Over the year, PME struggled with an overallocation to private equity, to which it had just increased exposure in 2022. The fund said it has “a long-term deleveraging plan” in place for the asset class but said reducing stakes was “a slow process” because of the large differences in prices PME was willing to accept and prices other investors were ready to pay.
“Also, stock market listings were almost impossible due to volatile financial markets,” the fund added.
PMT, the third-largest pension fund in the Netherlands with some €83bn in assets under management, also saw its alternative investments drag down its returns.
While listed equities returned 17.2%, the fund’s private equity investments only returned 0.4%. On its non-listed real estate portfolio, the fund made a return of -1.7%.
Like PME, PMT is also overweight private equity within its return portfolio. The asset class “is hard to sell quickly for acceptable prices”, according to the fund.
PMT and PME both have their assets managed by MN, a pension asset manager majority-owned by PMT.
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