NETHERLANDS - Zeist-based pension fund PGGM has been forced to rethink its investment strategy following worse than expected returns for 2002.
The E45bn scheme for Dutch health and social workers blamed sharp declines in international equity markets for a -6.9% drop in asset value last year. Funding levels also fell by 18% to 106% compared with the corresponding figure for 2001.
PGGM said that it is would undergo an in-house asset liability study in the second quarter, with the results expected by year-end. The last time the fund conducted a similar review was back in 1999.
A spokesman for the fund said: “These are not the results we wanted but that is the case with a lot of pension funds.
“[PGGM] can be satisfied with its outperformance when we compare it with our benchmark, but because of the situation with the financial markets we have decided to have a review this year.”
“Depending on the review we will discuss changes to our investment portfolio,” he added.
No details were offered, although a shift from equities to bonds is possible.
At the end of December 2002, the composition of PGGM’s portfolio stood at equities 45.5%; fixed-interest securities 30.2%; commodities 3.9%; real estate 15%; private equity 5.4%.
The fund exceeded its benchmark by 0.8% over the year. The benchmark return was -7.7%. Fourth quarter returns were also positive at +3.8%.
PGGM’s commodities folder performed the best - from -32.8% in 2001 to 35.5% in 2002, reflecting the global oil price hike. Positive returns from bonds and real estate last year also helped to offset negative figures in private equity (-16.6%) and equities (-22.8%). The latter posted its worst drop since the fund’s inception in 1969.
The 100% currency hedge also contributed just over 5% to the annual return.
Separately, the fund revealed that it has sealed its first foray into hedge funds. At the start of the month, PGGM made an initial commitment of US$400m to a new fund of funds portfolio. Two undisclosed managers have been appointed to the mandate which has a global remit and a conservative risk profile. A spokeswoman for the fund said that PGGM could be looking at further investment later this year.
Furthermore, PGGM, which is widely regarded as a forerunner in Dutch shareholder activism, also intends to kickstart the year by visiting companies which have achieved the lowest corporate governance scores during 2002, including ING, VendexKBB and Wessanen.
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