Despite Position as LDI Frontrunners, Dutch Pensions Suffer Severe Drop in Funding

Dutch schemes have suffered an 11% drop in funding as a result of poor market performance and increased interest rates, according to De Nederlandsche bank (DNB), the Dutch pension regulator.

(September 23, 2011) — Dutch pension funds — one of the first to embrace liability-driven investing (LDI) following strict regulations requiring greater funding levels — have witnessed an 11% drop in funding.

According to De Nederlandsche bank (DNB), the Dutch pension regulator, the decline in funding ratio from March to August has been a result of poor market performance and rising interest rates. The average funding ratio of Dutch pension funds has fallen severely from 112% as of March of this year to 101% at the end of August.

The regulator explained that the deterioration of the funding level – the ratio of available assets to liabilities – was a result of a decline in equity prices as pension funds’ liabilities increased due to a drop in long-term interest rates.

“During the period between end-March and end-August, the Amsterdam Exchange Index (AEX) declined by 19.9% and the MSCI World Index by 10.8%. The decline reduced the value of pension funds’ available assets, directly affected the funding ratios. A positive return on fixed-rate asset portfolios could not compensate the loss,” DNB stated.

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Consequently, many pension funds currently face funding deficits, defined by the Dutch regulator as a funding ratio below 105%. Pension funds facing a funding deficit are required to submit recovery plans to DNB to be evaluated in early 2012.

At the end of August, 207 Dutch pension funds, totaling 4.7 million active members and 2.1 million retirees, had funding deficits, according to the regulator. Comparatively, at the end of March, 94 pension funds numbering 1.2 million active members and 0.6 million retirees had funding deficits.

DNB’s remarks follow a report released earlier this month by LCP Netherlands that showed Dutch pension deficits increased in 2010 and new IAS19 accounting rules are likely to heighten Dutch companies’ pensions liabilities even more.

LCP warned that the International Accounting Standards Board’s (IASB) new accounting rules, to be introduced in 2013 – which change the way pension scheme assets are valued by using mark-to-market accounting on the assumption that this is more transparent – will have a major impact on companies’ reported profits and would have lowered profits by €1.5 billion if applied for 2011. The firm noted that as well as lower headline profits for companies, current pension disclosures will be insufficient under the new version of IAS19.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Goldman Sachs Asset Management has announced that Richard Quigley, previously head of portfolio advisory at Albourne Partners, has joined its Alternative Investments & Manager Selection (AIMS) Group.

(September 23, 2011) — Goldman Sachs Asset Management has announced that Richard Quigley has joined its New York-based Alternative Investments & Manager Selection (AIMS) Group, which offers investors advisory solutions in alternative investments across private equity and hedge fund managers.

At AIMS, he will serve as Managing Director and Head of the group’s Advisory Solutions. Previously, Quigley was a partner and global head of portfolio advisory at Albourne Partners, an investment consultant.

“Whether encouraged by the potential to enhance returns or mitigate risks, investors are increasingly exploring hedge funds and private equity as part of their investment programs,” Christopher Kojima, Global Head of the AIMS Group for GSAM, said in a statement. “We are excited that Richard Quigley has joined our team, bringing our clients the benefit of his extensive advisory experience.” He added: “Comprehensive manager diligence, dynamic portfolio construction, and robust risk management are all essential ingredients for success. Some investors have sufficient resources and expertise in these areas, while others may look to complement their internal capabilities with our solutions. Our advisory program adds to the suite of alternative investment solutions we provide our clients around the world.”

The drive for investors to increasingly explore hedge funds and private equity as part of their investment programs is apparent as large institutional investors, including the California Public Employees Retirement Scheme (CalPERS) and British Airways Pension Investment Management, become more vocal about their hedge fund needs, reflecting a greater urgency following the financial crisis that hedge fund managers’ interests are aligned with theirs.

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While hedge fund performance suffered during the financial crisis, the sector is now playing an increasingly important role among institutions. In early May, for example, research by Preqin showed 94% of institutional investors who currently use hedge funds are likely to increase their commitment over the next three years. The increased use of hedge funds among institutions coupled with a tougher regulatory environment have pushed pension funds, endowments, and other investors to write a 42-page guide to help hedge fund managers better understand investor needs. The guide, which described itself as a reference for hedge-fund managers, provided suggestions that ranged from the size of the fund’s board to the timing of hedge fund reports. The aim of the guide was to outline investor views, expectations, and preferences on a range of operational and organizational issues, which are increasingly the focus of due diligence reviews and discussion among investors and fund managers, London-based Alternative Investment Management Association (AIMA) said in a release.

Related Article:“The End of the 3 and 30” From aiCIO‘s Summer Issue

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742