Pensioenfonds Metalektro (PME), which has just announced a 2.4 per cent return for the last quarter and expects a 105 per cent coverage ratio by end 2003, has seen a flurry of new appointments this year.
These have come as the E13bn Dutch metal workers pension fund moves away from its 2001 balanced structure, 100 per cent invested with Achmea, to a modern, specialist, approach.
The Amsterdam-based fund has returned 8.2 per cent year-to-date, with equities returning 4.2 per cent, fixed income 0.3 per cent and real estate 1.5 per cent. Roland van den Brink, managing director, investments, at PME is now gearing up for next year’s investment plan.
In 2001, the asset mix was 42 per cent equity, 8 per cent credits, 8 per cent mortgages, 13 per cent reinsurance, 20 per cent government bonds and 9 per cent real estate, with a 50 per cent currency hedge.
PME overhauled its investment and manager structure in 2002, going from a balanced approach to 17 specialists. It also reduced the equity component, rebalanced yearly rather than monthly, and used a 100 per cent currency hedge. Now, equity accounts for 36 per cent, with 12 per cent real estate, 3 per cent government bonds, 19 per cent reinsurance, 9 per cent mortgages, 11 per cent credits, 5 per cent high yield and 5 per cent emerging market debt.
Historically, Achmea was the only manager on the fund. Foreign & Colonial (F&C), which it acquired, still runs around 40 per cent of the assets. Although an ex-Achmea asset management office remains in Amsterdam, now part of F&C Management, PME also choose to take its business to London and work directly with the team there.
This, Mr van den Brink said, was “because of standards in general but also because the reporting is better”.
He added that the allocation to Achmea/F&C had dropped through a mixture of straight fund manager changes and changes in asset allocation.
It has been a busy year. Last month saw the appointment of GoldenTree Asset management, ING Ghent and Seix Investment Advisors to run $310m, $264m and $202m respectively. These US high yield debt briefs will be run against the Merrill Lynch High Yield Master II Index.
At the same time, Citigroup Asset Management won $279m, and Ashmore Investment management and Bridgewater Associates $248m each in emerging market debt, against the JPMorgan EMBI Global Diversified Index. “The change was made to get a better return-risk balance,” Mr van den Brink said. The mandates were funded from PME’s allocation to government bonds.
He added that the fund, in picking managers, was far more interested in investment process than past performance. “Past performance doesn’t give you any guarantee to the future.”
This year has also seen Credit Lyonnais subsidiary scoop a E120m socially responsible investment (SRI) mandate from the fund, while Goldman Sachs Asset Management won a E750m global tactical asset allocation and active currency strategy brief.
Six months ago, the fund appointed its first SRI manager, handing E130m in European equity to Credit Lyonnais subsidiary ADF Capital. There, are according to Mr van den Brink “no direct plans” to add any more SRI mandates to the mix.
However, against the background of the new draft code on the subject from the Tabaksblat Committee, PME, like its counterparts, is in the process of fine-tuning its corporate governance approach. Last month saw it write to express its support of Dutch pension funds, ABP and PGGM, in their objections to the salary structure of Ahold chairman Anders Moberg – who’s structure has now been changed.
Mr van den Brink said the fund was organising its relationship with Isis, to whom it has given a social engagement mandate. “Isis will vote on behalf of the fund and write letters. The information then passes through to the investment managers,” he explained. “We are trying to achieve this in 2003.”
As this shows, PME, like all pension funds, does not operate in a vacuum but must continuously grapple with industry-level issues. Today’s key topics for Dutch pension funds, according to Mr van den Brink, are “duration extension” and “alpha strategies”.
The former, essentially, is the mismatch between the duration of assets and that of liabilities. Investments, he said, should have “at least the same duration as liabilities. This is not the case – there is a huge mismatch. Pension obligations have a duration of, say, 18 years versus five years for the investments.”
This is being tackled at the level of individual pension funds, with some funds carrying out studies. PME, which is “certainly” affected, is investigating the issue.
Second, the focus is on alpha-producing strategies – whether to move (and how much to move) into hedge funds, private equity, and so on. For PME, it is something of “a question of definitions. We have invested in private bonds which have higher alpha, we have invested in mortgages, which also have higher alpha versus government bonds,” Mr van den Brink said.
The PME investment strategy, he added, ultimately revolves around long-term coverage of liabilities. But on the three-year horizon, there are two goals. First, rather obviously, not to default on regulatory restraints. And, second, to achieve benchmark portfolio returns, per asset class (equities, fixed income, real estate), above the industry average.
“Say my peer group has equities in average of 10 per cent then my benchmark portfolio should do better than 10 per cent,” Mr van den Brink explained. This, he said, makes sense. “The asset class mix is dependent on liabilities but within the asset class the allocation [for example, between European and US equities] is up to us, so it is fair that you measure yourself against everybody else.”
Thus the fund is measured on policies over three years. But it also has targets on a year-to-year basis on the operations side. “We have to add 40 basis points after cost, yearly,” Mr van den Brink said. This quarter’s 2.4 per cent return for the fund was preceded by 7.4 per cent in the second quarter, up from a -1.5 per cent return for the first three months of the year.
