Dutch Pension Halves Cost with Passive Approach

PME, the Dutch fund for metalworkers, has halved its costs in five years by selling down complex investments and establishing a core of passive holdings.

The €39.5 billion fund announced this week it had cut asset management expenses to 0.39% at the end of 2014, down from 0.85% in 2010.

During that time the pension reduced its holdings in hedge funds significantly as the costs were not justified, according to PME General Manager Eric Uijen. This move had a major impact on reducing overall expenses, and echoed a similar move by the Dutch health care workers’ pension PFZW.

PME said it was using passive strategies to access “highly efficient” markets such as US equities.

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“This principle is only waived if expensive active management, in the eyes of PME, adds sufficient value,” the pension said in a statement. High-yield corporate bonds was one area where active management could add value, it said.

PME has been struggling to meet its funding ratio requirements in recent years, and had to cut its pension payouts in 2012 and 2013. At the end of 2014 its coverage ratio was 104.1%, according to its latest report, and the effects of positive investment performance have been offset by falling interest rates. Under the Netherlands’ pension law, defined benefit funds must hold assets of at least 105% of the value of their liabilities.

Unlisted infrastructure funds in 2015 have raised the second lowest level of assets since the start of the decade and fewer than half the average number of funds have successfully closed, Preqin data has shown.

Since the start of the year, just $9.8 billion has been raised and just 11 funds around the world have closed, Preqin said in its half-yearly review.

agg infra funds july 15 Source: PreqinThis compares to $24.2 billion and $18.8 billion raised in 2014 and 2013, respectively. In 2014, managers closed 19 funds; in 2013, 31 funds were closed.

“Institutional investors are concerned about high valuations for infrastructure assets and the impact this will have on the performance of the asset class,” said Andrew Moylan, head of real assets products at Preqin. “These concerns appear to be translating into reduced levels of commitments, and a slower fundraising market.”

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In May, consulting firm Cerulli found a growing demand for infrastructure, combined with limited supply, was forcing down return in the asset class—and putting investors off.

The number of deals completed has fallen sharply in 2015, Preqin said. In the first half of the year, 260 deals were completed in the sector, comparing to 463 a year earlier. As a consequence, the aggregate value of deals was down this year too. From deals ranging from an aggregate $200 billion to $300 billion in the first quarter of 2014, this year the range fell from around $200 billion to under $150 billion.

However, fund managers have not been put off, Preqin said, with the highest number of products being marketed to investors this decade.

In 2015, 151 funds were being offered to investors. The second highest number of funds on the market was in 2013, when 145 were available. Despite this level of products, the level of assets being targeted has remained relatively stable.

infra deals Source: PreqinThe combination of this high asset target and lack of appetite from investors has had an impact on managers’ working practices. Preqin noted that managers were spending an average 27 months on the road gathering assets, which was the highest since they began using this metric in 2008.

“While some managers have been very successful, competition for investor capital is intense and with more than 150 funds being marketed, many firms may struggle to meet their fundraising goals in the months to come,” said Moylan.

PensionDanmark today announced it had allocated DKK4 billion ($594 million) to a fund from Copenhagen Infrastructure Partners. The Copenhagen Infrastructure II fund’s launch was announced in October last year, and following a successful close it now has roughly $2.2 billion in assets from 19 institutional investors from across Europe, making it one of the continent’s largest dedicated infrastructure funds.

PensionDanmark now has $2.5 billion invested in infrastructure, roughly $1 billion of which is managed by Copenhagen Infrastructure Partners.