NETHERLANDS - Dutch pension funds are increasingly looking to asset managers for liability-driven solutions to bring their portfolios in line with the funding requirement set by the new supervisory framework ‘Financieel Toetsingskader' (FTK), says Northern Trust Global Investments.
The FTK requires assets and liabilities to be valued on a marked-to-market basis and is based on a 105% minimum funding position plus a solvency margin of up to 25%. This solvency margin depends on the extent of the mismatch between the assets and the liabilities.
Director of Dutch sales, Heico de Boer, said pension funds are seeking ways to increase the duration of their portfolio to reduce the chances of underfunding under the new guidelines, which come into effect from January 1, 2006.
“The [valuation of the] liabilities of pension funds is changing now so the liabilities are valued at market level and are discounted at market rates,” he said. “This means the liabilities will be more volatile and on top of that, the Dutch regulator has issued guidelines whereby the assets have to be brought more in line with the liabilities in the sense that the chances of underfunding are very minimal. Because the liabilities are more volatile, the Dutch pension clients need to change their investment strategies.”
De Boer said the new regulations had set the Dutch market apart from the rest of Europe.
“Consequently, there’s more interest in liability-driven investment solutions in the Dutch market place than some of the other European market places,” he said. “It’s not always black and white, you also see discussions about liability-driven investments in other markets, in the UK for sure and also in the Nordics for instance, but especially in the Dutch market place.”
de Boer says funds are considering a range of liability-driven strategies including matching liabilities completely, reducing the mismatch and liability plus solutions.
But despite the huge interest, he says most pension funds are still in the process of assessing their options with few having already implemented the liability-driven solutions on offer.
“Clients in the Netherlands are looking at these types of strategies but have not really implemented them,” de Boer said. “There are a few obviously who have already done so but the bulk is looking at it this moment.”
This week's top stories included Cardano announcing plans to acquire Now Pensions from a Dutch pension fund later this year.
Royal Bank of Scotland (RBS) faces a £102m impact on liabilities as a result of equalising guaranteed minimum pensions (GMPs), according to its annual results.
Malcolm Mclean says getting the channels of communication right and engaging more openly is a good starting point