BpfBouw, the pension fund for Dutch construction workers, has slashed its investments in emerging market equities to under 3%, echoing similar moves from other Dutch schemes.

Pension funds ABP and KPN also reduced their exposure to emerging market equities recently, as IPE reported. ABP argued that it had been investing more in emerging markets than its benchmark and wanted to free up money for additional impact investments domestically. According to KPN, returns for emerging markets did not sufficiently compensate for the higher risk.

In December 2023, Bpf Bouw slashed its exposure to emerging market equities by half to just under 3% of assets while opting for a higher allocation to developed market equities instead.

“Emerging markets have greater sensitivity to disruptions in the global trading system and are more exposed to physical climate risks than developed markets,” the €66.5bn fund said in its annual report.

In 2023, BpfBouw achieved a return of 7.5% on emerging markets equities. “This is not a bad return, but it looks poor compared with the 15.6% return on developed market equities,” the fund said.

Excessive control

In unusually frank terms, the pension fund lays the blame for the comparatively poor performance of emerging market equities over the past years squarely at the door of China’s leadership.

“It increasingly looks like the country is in deflation with falling prices of goods, services, houses and assets. Beijing’s excessive control over the management of large companies also plays a role in this. Investors are demanding a higher risk premium as a result, which is pushing share prices lower.”

Overall, BpfBouw achieved a return of 7.7% over 2023. The double-digit returns on developed market equities were somewhat offset by a loss on the fund’s real estate investments (-4.7%) and muted, though positive returns on private equity, hedge funds and infrastructure.

This article was first published on Pensioen Pro, IPE’s Dutch sister publication. It was translated and adapted for IPE by Tjibbe Hoekstra

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