Dutch funds reduce risk as recovery plans kick in

Dutch pension funds have been forced to rejig their asset allocations, reducing risk in an attempt to meet stringent statutory funding requirements enforced by the Dutch regulator, De Nederlandsche Bank (DNB).

Stichting Shell Pensioenfonds has adjusted its strategic asset allocation as part of a recovery plan submitted recently to DNB, reducing its allocation to listed equities and increasing its allocation to fixed income and alternatives.

Listed equities have decreased from 55 to 45 per cent, fixed income securities have increased from 30 to 35 per cent, and alternative investments have grown from 15 to 20 per cent, the fund said.

In addition, Shell has shifted its regional distribution of equities, allocating 5 percentage points more to European equities at the expense of emerging market equities.

The €173 billion ABP also recently adapted its investment portfolio in light of the regulator’s requirement for funds to return their funding ratio to the minimum statutory level of 105 per cent.

ABP announced a raft of measures as part of its own recovery plan, one of which involved reducing the investment risk in the overall portfolio to improve the fund’s financial position. At the end of 2008, ABP’s funding ratio was 90 per cent.

“The risk profile of the investment portfolio has been adjusted slightly in the investment plan for 2009 and the following years, whereby the risk of a fall in the coverage ratio is reduced,” the fund said.

ABP did not expand on how the reduction in risk had been achieved, or which asset classes were affected by the move.

According to DNB, about 350 out of the 650 Dutch pension funds were required to submit recovery plans before April 1, 2009.

“It is in the interest of pension fund members that clarity is soon provided about their pension funds’ positions and the measures (potentially) to be taken,” DNB said in a statement.

“Pension funds themselves play a crucial role in minimising unnecessary delays and maximising the transparency of the information sought.”

The Shell pension fund board had already temporarily adjusted the fund’s asset allocation in October 2008 due to market volatility, reducing listed equities exposure to 30 per cent and increasing the allocations to fixed income and alternatives to 50 and 20 per cent respectively.

Shell said the decision as to when and how to move from the temporary to the new strategic asset allocation remains under review by the board.

Shell’s funding ratio is currently about 80 per cent. The recovery plan rules out conditional indexation in 2009, and includes an increase in employer contributions from 5 per cent to 23.6 per cent from January 1, 2009 and additional funding based on the existing agreements between the pension fund and the Shell member companies.

ABP has opted for a period of five years within which to restore its coverage ratio to 105 per cent.

Its recovery plan includes a temporary increase in the premium for old-age and surviving dependants’ pensions, to be paid jointly by employers and employees but does not include any reductions in pension entitlements.