The €30bn Dutch pension fund PGB has not seen a great negative impact from the latest equity market collapse and has recently sold some of the put options it had acquired as a hedge against a decline of its equity investments.

In addition, it had also divested 10 percentage points from its equity holdings ahead of the COVID-19 crisis, it announced in a newsletter.

PGB is one of few Dutch pension funds that has deployed put options to cover equity risk.

At the end of 2018, it had started buying derivatives because equity was relatively expensive and market sentiment was negative, it said.

As part of its equity risk policy, it would invest in put options in the absence of a recent extreme decline of the asset class and against acceptable costs.

It said PGB Pensioendiensten, the scheme’s pensions provider and asset manager, had found that the pension fund’s coverage ratio would have dropped at least six percentage points less following the financial crisis in 2008, if PGB had had today’s hedging policy in place.

The multi-sector scheme said it had reduced its equity portfolio from 49% to 39% at the start of this year, as part of its dynamic investment policy.

As a result of the adjustment, the ratio between its matching and return holdings changed from 40-60% to 50-50%.

However, PGB said it couldn’t quantify the impact of the de-risking measures on its coverage ratio at the moment.

It said that it had decided to continue its current investment policy during an additional board meeting on 10 March.

The pension fund added that its equity divestment hadn’t prevented its coverage ratio – 96% at the end of February – from dropping further in March. It said decreasing interest rates had also contributed to the funding dip.

PGB has also granted its affiliated employers leeway from paying their pension contributions.

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