Mediahuis Nederland Pensioenfonds, the €1.2bn pension fund of the Netherlands’ largest newspaper De Telegraaf, more than tripled its investments in defence companies in 2023. The rise follows a relaxation of the fund’s exclusion policy, allowing for more investments in defence companies.

In 2023, the fund’s investment in defence companies amounted to €5.2m, or 2.1% of the total equity portfolio in its own name. This was up from €1.1m before the Russian invasion of Ukraine in early 2022. Hence, over the past two years there has even been a five-fold increase in defence investment, making the fund the first in the Netherlands to respond to a call from politicians and military figures to invest more in the (European) defence industry.

Against this geopolitical backdrop, the pension fund decided to relax its exclusion policy for weapons manufacturers.

“Our old policy was that we didn’t invest at all in companies that had anything to do with nuclear weapons,” according to the fund’s president Arno Reekers.

He added: “But that means excluding many manufacturers of ordinary weapons. We never wanted to exclude ordinary weapons and the Ukraine war shows the need for that. F16s and anti-aircraft guns, for example, must be able to be produced for Ukraine.”

The fund therefore relaxed the exclusion of production of (components for) nuclear weapons; only supplies to countries outside the Nuclear Non-Proliferation Treaty, intended to limit the possession of nuclear weapons, remained prohibited.

As a result, many more arms manufacturers became eligible. This allowed the German defence firm Rheinmetall to become the fund’s largest individual European equity position by 2023. Thales, Dassault and Hensoldt were also added to the portfolio. The decision to buy these stocks was, however, not taken by the fund itself.

“Our equity investments are selected by external managers. We did not ask or stimulate them to invest more in defence. The only thing we did was to scrap some exclusion guidelines,” said Frank Huitema, chief investment officer of Pensioenfonds Mediahuis. Huitema declined to name the manager in question.

White phosphorus

With Rheinmetall, the pension fund also brought in the recently acquired firm Expal Systems. This Spanish manufacturer of, among other things, grenades also made products in which the controversial white phosphorus was used.

Pension fund Mediahuis reported in its recently published annual report that Rheinmetall publicly announced at the end of 2023, partly due to pressure from the fund, that it would cease these activities in the short term.

The investments in the defence companies did not hurt the fund financially. Rheinmetall shares – part of the German index DAX – climbed nearly 70% to €288 in 2023 and are now quoted at €496. Thales gained more than 12% last year, although Dassault and Hensoldt produced much lower returns.

Real estate losses

The investments in defence helped the pension fund to beat its benchmark last year. It achieved a return of 18.0% on its total equity portfolio, beating the MSCI World Index by 1.1.%.

The overall annual return of the fund was 10.2%, net of asset management and transaction costs. That result, according to the fund, was “largely the result of choices as an active investor in the return portfolio”.

All asset classes contributed to the positive return except real estate, which was by far the worst-performing category in the investment portfolio with a return of -9.8%.

“In retrospect, we should have intervened earlier in 2022 when the portfolio weight of real estate began to increase,” the fund board said. By the end of 2023, the real estate share of the portfolio, previously 7%, was almost back to the strategic allocation of 5%.

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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