Bloomberg News

Dutch Pension Funds Oppose in Views on Italian, Spanish Debt

May 11, 2012

The two biggest Dutch pension funds have opposite views on Italian and Spanish bonds, with one owning 10 billion euros ($12.9 billion) of the securities and the other cutting all of its holdings.

The nation’s largest retirement fund, Stichting Pensioenfonds ABP, predicts the region will recover from its debt crisis, while its best-performing investments last quarter were Italian bonds, according to Ronald Wuijster, head of asset allocation at APG Groep NV, which manages ABP’s assets. The second biggest, Pensioen Fonds Zorg en Welzijn, or PFZW, sold the last of its Italian government securities in 2011.

Euro-area economies will “muddle through” the current debt-market turmoil, Amsterdam-based Wuijster said in a telephone interview. ABP may change its euro-area asset allocation if the crisis worsens, he added.

Italian bonds returned 11 percent in the first quarter, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. They have since fallen 1 percent. Spanish securities gained 1 percent in the first three months of the year, before dropping 2.8 percent since April 1.

A large part of ABP’s holdings of southern European bonds are inflation-linked, Wuijster said, adding that the market is dominated by Italy and France.

“There is the consideration of inflation hedging, there is the consideration of valuations and there is the consideration of benchmarks,” Wuijster said. “Those combined lead to still substantial positions.”

Portfolios Increase

The two pension funds built up their portfolios of southern European bonds after the euro area was created in 1999, when they started to follow benchmark indexes based on market capitalization. This choice tilted their portfolios toward countries with the highest outstanding debt, namely Italy, France and Greece.

By the end of 2009, ABP held 2.34 billion euros of Greek government bonds, 9.63 billion euros of Italian debt and 10.41 billion euros of French securities, according to data from the fund. PFZW owned 524 million euros in Greece, 2.73 billion euros of Italy and 6.29 billion euros in France. Their holdings have since diverged.

ABP’s holdings of Italian bonds peaked at 10.33 billion euros in 2010. The fund reduced that amount to 7.69 billion euros at the end of 2011.

“We weren’t aware that credit risk was such an issue when we bought these bonds,” Wuijster said.

French Bonds

PFZW sold all its Greek, Spanish, Irish and Portuguese holdings in 2010, and its Italian bonds in 2011.

From 2009, “markets told you that the exposure to the peripherals was not considered to be risk free, therefore they didn’t meet the criteria for inclusion in our matching portfolio,” said Bob Raedecker, chief investment officer for public markets at PGGM NV, which manages PFZW’s assets and is based in Zeist, the Netherlands.

While some pension funds, such as Denmark’s ATP, reduced holdings of French debt and refused to accept the country’s bonds as collateral, ABP and PZFW stayed invested in France, with year-end positions in French sovereign bonds of 13.49 billion euros and 3.8 billion euros respectively.

“We see France as being one of the core countries in Europe,” Raedecker said. ABP also considers France to be a core country, Wuijster said.

Protecting Assets

Rather than aim for investment returns, European sovereign bonds serve to protect clients’ assets against interest-rate risks and provide a source of liquidity, Raedecker said.

The Netherlands has mandatory retirement plans contributed to by employers and workers in addition to state pensions. Government workers’ and teachers’ fund ABP had 261 billion euros in assets at the end of the first quarter, while PFZW oversees 116 billion euros for health-care and welfare workers.

The funds, which have to value their liabilities using euro swaps, have struggled to meet capital buffer requirements as interest rates are low, even as their assets had positive returns since 2009.

ABP had a coverage ratio of 95 percent at the end of March, indicating obligations exceed their assets. For PFZW, the ratio stood at 96 percent.

To contact the reporters on this story: Maud van Gaal in Amsterdam at; Nicholas Dunbar in London at

To contact the editor responsible for this story: Frank Connelly at

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