Study: Large Dutch pension funds match returns of smaller peers despite riskier investments
The five largest pension funds in the Netherlands, responsible for the majority of Dutch pension assets, have been found to invest heavily in private equity and real estate. While they generate higher returns through these riskier investments, their gains are offset by their limited protection against interest rate fluctuations.
The five largest pension funds in the Netherlands, responsible for the majority of Dutch pension assets, have been found to invest heavily in private equity and real estate. While they generate higher returns through these riskier investments, their gains are offset by their limited protection against interest rate fluctuations.
As a result, these large funds ultimately achieve similar returns to their smaller counterparts. This surprising outcome, based on Dutch central bank data from 2007 to 2022, reveals that despite varying investment styles, large and small pension funds in the country yield comparable returns.
The bigger funds excel in riskier asset categories, thanks to their superior analysis and risk management, but smaller funds, with a more conservative approach favoring fixed income securities, also secure impressive returns.
The key factor hampering the large funds is their inadequate interest rate hedges, which proved costly when rates were declining. Additionally, investments in commodities and hedge funds by larger funds, unlike their smaller counterparts, delivered low or negative returns.
The study suggests that despite their advantages in scale and analytical capabilities, larger pension funds fail to outperform smaller ones. Furthermore, the research proposes that further consolidation in the pension sector could potentially enhance overall returns. However, this conclusion remains complex due to the past difficulties associated with lower interest rate risk hedging by large funds.
