Dutch Pensions: No Fall Guys for Banks | Chief Investment Officer

(October 12, 2012) — Dutch pensions have restated the right to invest according to their own needs, rather than be used as a bail-out fund.

Reports from the Netherlands today have shown pensions coming under pressure from domestic banks to relieve pressure on their balance sheets as they feel the burden of the Eurozone crisis and impending regulation on capital adequacy.

Three of the largest Dutch banks have been sounding out pension funds over potentially buying chunks of mortgages that sit on their books, according to reports in the Wall Street Journal. The paper said Rabobank, ING, and ABN Amro, had consulted the investors – which between them manage almost €1 trillion in assets – on the possibility of taking on some of these financial products.

The move would not be the first time these large investors had taken on mortgages and other loan products. In August 2008, Standard Chartered became of the first financial institutions to enlist pension fund assets to improve its liquidity position, after bringing in pension fund investor PGGM as a partner on an innovative collateralised loan obligation deal worth $2.5 billion.

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As the bank’s sole partner, PGGM took on the higher risk tranches of a commercial loan portfolio for an undisclosed amount, in a deal to last an average three-and-a-half years.

However, the Wall Street Journal reported PGGM, which invests on behalf of the second largest pension fund PFZW, was not interested in such deals.

A spokesman for APG Asset Management, which invests on behalf of the largest Dutch pension ABP, told aiCIO: “The main goal for pensions is to make returns that can pay benefits. If we can do that in a way that helps the Dutch economy that is great, but it is not the overall aim.”

He said that over the past month increasing numbers of people within the financial hierarchy in the Netherlands had mooted the idea of pension assets being used to buy products from banks.

“The numbers they are talking about – several hundred billion euros – would be equivalent to a third of the country’s pension assets. This would mean the diversification we have strived for in portfolios would be destroyed,” he said. “We have been talking to the relevant parties, however, and if the characteristics of the investments fit with our needs there might be benefits for all in taking a closer look – but not at such a great scale.”

In the United Kingdom pension investment experts have called for pension funds to take advantage of deleveraging by banks – which must comply with strict new laws under Basel III – by buying good quality long-term debt that would fit the duration of liabilities.

The APG spokesman said: “It’s not fair if only pension funds are targeted to help out the banks – we do not need to move our investments.”

APG recently announced a deal to fund the maintenance of a road in the Netherlands along with a consortium of other European pension fund investors.

(October 11, 2012) – Harvard University’s $30.7 billion endowment will not be the only endowment posting lackluster returns for the 2012 fiscal year, according to Fitch Ratings.

“It’s still early, but the positive trends that we were noting for 2010 and 2011 are likely to subside for 2012,” Angela Guerrero, an assistant director at Fitch, told aiCIO. “Endowments smooth their returns over three years, and so the serious losses from 2008 and 2009 had almost cycled out. Based on the results that have come in so far, there is generally a slowdown in the positive trend we were seeing.”

The world’s largest university endowment lost 0.05% on its investments this year—taking a serious hit on its global equities portfolio—after gaining 21.4% last year and 11% in 2010.

But not every Ivy or major endowment is flat lining.

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Yale University returned 4.7%, and the Massachusetts Institute of Technology (MIT) gained 8%. “There is a lot of diversity in the endowment space,” Guerrero points out. “Asset allocation varies greatly by school. Harvard and MIT have more sophisticated asset-managing corporations, which subject you to higher highs and lower lows. Those with exposure to the equity market in 3rd quarter of 2012 suffered for it.”

While MIT may have escaped the volatile global stock market, Guerrero says much of the university landscape may have equity exposure that follows closer to Harvard—which is not the ideal role model this fiscal year.

“For the most part, across smaller institutions which have fewer resources and often more banal asset allocation, it’s a 70%-30% fixed income-to-equities split. Private universities of course depend on their endowments more than public ones, which have more diverse funding streams.”

The university endowment space as a whole needs another good year to recover from the financial crisis, she says, and “if 2012 comes in flat, it’ll just really keep endowments from bouncing back, it will stunt them a little bit.”