EXCLUSIVE NETHERLANDS - The e150bn ABP is considering a foray into CAT (Catastrophe) bonds and infrastructure bonds this year, in a bid to further diversify its portfolio.
The fund is also looking to broaden its alpha capacity with the appointment of new high alpha managers in the equities and the fixed income segment.
Jean Frijns, chief investment officer, ABP said: “We will tender for CAT bonds later this year but we are still studying how we will invest in infrastructure bonds.”
He explained: “We have three overriding priorities in 2004 - we are trying to further diversify our portfolio and are looking at CAT bonds and infrastructure bonds. We expect to allocate between 0 and 1% as the market for CAT bonds is not that big and though the infrastructure could be a very large market, at this stage it is at its infancy.
“The second most important priority is to broaden our alpha capacity. It is not a new strategy but we are on the constant lookout for new high alpha managers, not only in the equities segment but also fixed income segment.”
Catastrophe reinsurance bonds are considered an alternative source of funding for property and casualty reinsurance and are securitised instruments based on insurance receivables out of catastrophe insurance.
ABP is also considering increasing its allocation to commodities to 2.5% from 2% but does not plan to appoint managers as this portfolio is managed in-house.
Meanwhile, the fund has reduced its pension package by switching from final pay to average pay, starting January 1, 2004. Contributions have also been hiked from 13.6% to 18.6%.
“We have also been preparing ourselves for the new solvency norms - we have an appropriate asset mix, we have made indexation conditional on the financial situation of the fund, we have reduced benefits on our pension package and increased contribution rates,” Frijns said. ABP is also in talks with the regulator Pensioen & Verzekeringskamer (PVK) for greater autonomy in risk management.
“We are discussing with the PVK to what extent we can rely on in-house risk models, so that we are not subject to mechanical rules but can have more room to find an optimal allocation which fits in the overall risk framework which has been agreed with the PVK.
“Instead of mechanical rules we should have an explicit risk framework, in addition to a risk management model or ALM model. The responsibility of having an ALM model should be with the pension fund,” said Frijns.
He added that the PVK would approve the quality of the model and at its implementation.
“The PVK have made it clear that they are in favour of this but at this stage, nothing is concrete,” he said.
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