(August 28, 2013) – Pension funds in the Netherlands have increased their investments into domestic mortgages, pushing asset manager Syntrus Achmea into the country’s top 10 mortgage providers.
A report on Dutch news website FD.nl noted that 38 pension funds had begun investing in mortgages through Syntrus Achmea including the metal and electrical pension fund PME.
PME currently invests €2.7 billion in Dutch residential mortgages, and plans to expand that to €3 billion in the next year, a spokesman told the website.
ABP also has €6.5 billion in domestic mortgage securities, although most of that is in legacy funds from the days when ABP itself provided mortgages, the website reported.
Syntrus Achmea has strict criteria for the mortgages it offers: 99% are National Mortgage Guarantee products (a scheme which ensures any residual debt is settled with the lender in the event of the home owner suffering from incapacity, death of a partner or job loss), or those with a 60% loan to market value.
The push into mortgages has been driven in part by the Dutch government as part of its “Orange Investing” campaign, designed to get institutions to invest in domestic products.
Dutch institutional investors currently invest as much as 85% of their assets abroad: in January the government and Dutch banks started a campaign to try and encourage pension funds and insurers to reallocate their investments back home, helping to support the local economy.
In March, Kees van Dijkhuizen, then the CFO of Dutch bank NIBC and now the CFO of ABN Amro, produced a report for the minister for housing on how to encourage domestic investors back into the Dutch market.
This included getting the banks to securitize mortgages of up to €320,000, which are guaranteed by the Home Ownership Guarantee Fund. This should then sell AAA tranches to a special purpose vehicle, the National Mortgage Institute, which would issue housing bonds to the market.
But in May, the International Monetary Fund (IMF) told Dutch pension funds to steer clear of the market, in order to encourage the banks to get the economy moving again on their own.
Pension funds’ investments should not be incentivised to alter their asset allocation in this way, the IMF warned, adding that house prices required further adjustments, and there was a need for more transparent pricing of real estate sector risk.
Some economists believe the future is looking brighter for the Dutch housing sector however: Morgan Stanley insurance analysts David Andrich and Jon Hocking put out an investor note in July saying that while a weak macroeconomic climate was the biggest risk for the sector, they were broadly positive about its future.
“The Dutch mortgage market is facing a number of challenges such as tightening lending standards, a reduction in tax deductibility of mortgage interest, and historical issues. However, we think there are enough supporting trends to avoid a hard landing,” the note said.
“Our base case for the Dutch mortgage market is elevated risk and increasing risk costs in the near term, but for a gradual improvement in line with a subdued economic recovery.”
Consultants aren’t so sure however.
Marsha van Beusekom, investment consultant at Aon Hewitt, told aiCIO her clients were not moving towards mortgages at the moment.
“The Dutch government has agreed with pension funds and insurers to put more money into mortgages to assist in the recovery of the financial crisis, so maybe this will lead to more investments in mortgages,” she said.
“Compared to AAA/AA sovereign bonds, you will receive an extra spread for mortgages, but the liquidity of mortgages is lower than sovereign bonds and–depending on the quality of the mortgages–it can lead to additional buffer requirements.
“Mortgages themselves are less transparent because of the fund approach. In our opinion this needs more monitoring.”
Interestingly, the banks’ funding gap in the Netherlands was primarily caused by high amounts of mortgage lending.
Last year, Stichting Pensioenfonds ABP finally reached an undisclosed settlement with JP Morgan to settle claims regarding residential mortgage-backed securities, a year after first filing its claim.
The fund purchased these securities from affiliates of JP Morgan in 2006 and 2007. It later settled out of court with Goldman Sachs over a similar issue.
Outside of the Netherlands, JP Morgan is continuing to battle with investors over residential mortgages: Reuters has reported that the US government housing finance authorities are pressing JP Morgan for at least $6 billion to settle lawsuits over bonds backed by subprime mortgages.
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