Home ListingJuly 2, 2015

Dutch Pension Halves Cost with Passive Approach

Ditching hedge funds and focusing on simpler investment approaches helped PME cut costs dramatically in five years.

Reported by Featured Author

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.

“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.