WM Performance Services (WM) released the 2004 results of the Universe of Dutch Pension Funds. The average fund in the Universe achieved a return of 9.9%, slightly down from 2003 (10.7%).
Accounting for inflation–a Consumer Price Index rise of 1.2%–this represents a real return of 8.6%. On the whole, with two years of positive growth behind them, Dutch pension funds have recovered a large portion of the losses sustained during the savage equity bear market occurring between 2000 and 2002, according to WM. This Universe includes 122 pension funds whose performance has been measured by WM. At the end of 2004, these funds encompassed approximately Ђ180 billion of invested assets. (This Universe does not include the ABP and PGGM funds.)
The asset allocation of the pension fund investments showed a slight increase in alternative investments relative to the previous year. The search for diversification has led to growth in the popularity of Private Equity, Commodities and Hedge Funds. Dutch pension funds also showed a growing appetite for investing in emerging markets such as China and India.
“In their quest for alpha generation and risk diversification, it appears that Dutch pension funds have moved to ‘alternatives’ and emerging markets,” said Robert Rijlaarsdam, WM Performance Services Manager in the Netherlands. “The positive results of the last two years need to be viewed in context–the changing regulatory environment and the losses suffered at the beginning of the decade both continue to greatly impact the fortunes of many pension schemes.”
In 2004, equities finished the year strongly, with returns of 9.0%. Double-digit returns in Europe, Pacific ex-Japan and emerging markets regions contributed strongly to the positive equity performance. On the fixed income side, Eurobonds, private loans and mortgages performed relatively well, with returns of 7.3%. International bonds–including high yield bonds–were affected by the strength of the Euro and closed at 6% for the year (excluding the impact of currency hedging). Property was particularly strong, posting returns of 11.9% for the year, with real estate investment funds making an important contribution (up almost 33%).