NETHERLANDS - Dutch healthcare pension fund PGGM has posted a return of 2.7% in the first quarter of 2005 on the back of rising oil prices.
Commodities generated a return of 25% for the fund, well ahead of returns in other asset classes.
The overall return came in ahead of Dutch giant ABP, which posted a return of 1.6% for the quarter, but behind PME, which posted a return of 2.9%.
ABP and PME also benefited from the surge in oil prices, returning 22.7% and 22.8% on commodities respectively.
PGGM said its portfolio of strategies - the new asset class added by the fund in January - posted a return of 4.7% for the first quarter.
Chief investment officer Else Bos said: “Our portfolio of strategies will help us to achieve our objective of a high, but more stable return. We will do this by adding new strategies, focussing on absolute return, to our traditional buy-and-hold strategy.”
PGGM altered its strategic investment mix on January 1 on the basis of an extensive asset liability study, the most significant change being the addition of the new investment category.
In recent years, the fund said it had accumulated market experience in absolute return strategies by investing in fund of hedge funds on a small scale and by introducing overlay management.
“Other new, dynamic strategies will be added in due course,” the fund said.
Bos added: “With our portfolio of strategies, we are focussing our innovative strength on PGGM’s long-term return targets. The new financial monitoring framework applying to Dutch pension funds calls for more attention to the short term. We anticipate that the inclusion of portfolio of strategies will bring greater stability to our return profile.”
PGGM’s new asset allocation stands at 45% equities, 30% fixed income, 5% commodities, 12% real estate, 5% private equity and 3% portfolio of strategies.
The fund’s portfolio of strategies has a target return of 370 basis points above the “applicable money market rate”.
“Greater stability of returns will be achieved by combining various different strategies into one portfolio,” PGGM said.
“Diversification in a portfolio context optimises risk and expected return. PGGM’s objective is to build up a portfolio consisting of 10-15 different strategies. Whether individual strategies are managed internally or externally will be a case by case decision.”
PGGM said in 2005 it would expand its existing investments in fund of hedge funds and overlay management, consolidated under the portfolio of strategies, with strategies based on fixed income arbitrage, insurance-linked securities and volatility being added during the year. The long-term target weighting for the new portfolio is 8%.
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