Risk reduction pays off for ABP

The giant Dutch pension fund ABP’s plan to reduce investment risk as a means of recovery from an underfunded position is paying dividends, with the coverage ratio increasing from 86 to 91 per cent from March to April.

At the end of March, APB submitted its recovery plan to the Dutch Central Bank, which included an adjustment to the risk profile of the investment portfolio for 2009 and the following years, in order to guard against the risk of a fall in the coverage ratio.

At the end of December 2008, where the fund’s assets were €173 billion ($US236 billion), the funding ratio had fallen to 90 per cent, due in part to a -20 per cent return for the year, and a fall in interest rates which increased liabilities.

For the first four months of 2009 the fund has returned 1 per cent, due primarily to equities and real estate, with emerging markets achieving the highest return.

The fund sets its strategic investment plan every three years, and the plan for 2007-2009 featured some deviations from the previous investment strategy, namely: a reduction in fixed income and an increase in real assets; the introduction of infrastructure, and innovation strategies; and within equities an increase in emerging markets and Europe and a reduction in US equities.