Sales and losses have led to allocations to the region falling by more than a fifth in 15 months. Allocations to Japan, and Taiwan were the most affected, according to central bank data.

A combination of sales and losses have seen Dutch pension fund allocations to Asia fall by €27.5 billion ($30.3 billion) since the last quarter of 2021.

Asia allocations by the industry in the first quarter of 2023 totalled €106.6 billion, down from €134.1 billion 15 months earlier, a fall of 21%, according to data from the Netherlands’ central bank DNB.

There were significant sales of equities,including in Asia, in 2022, to achieve rebalancing and to meet margin requirements associated with derivatives contracts, an important tool in managing liability risk for pension funds, which spiked as interest rates increased.

Dutch pension funds sold €9 billion worth of Asian equities in 2022, of which Japan accounted for €5 billion, Taiwan for €1.8 billion, Korea and India both €0.9 billion and Hong Kong and China a combined €0.4 billion, according to DNB data provided to AsianInvestor.

REBALANCING ACT

Sales of Asian equities, in particular, were driven by the need to rebalance, following the falls in values of bond portfolios, leaving equity allocations above target, according to a DNB spokesperson.

Investments in Asia are largely made up of equities and investment fund units, which collectively comprise 61%, according to data provided to AsianInvestor by DNB.

The  selling also affected North American holdings, 74% of which are made up of equities and investment fund units.

By contrast, 55% of pension fund investments in Europe are made up of debt securities, while investments in the Netherlands also include a larger share of mortgage loans and real estate.

Between Q4 2021 and Q1 2023, total allocations to North America fell 26%, those to Asia fell 21%, those to Europe fell 5%, while domestic allocations within the Netherlands increased by 5%.

However, total assets under management by Dutch pension funds increased by 2%, to €1.5 trillion, at the end of the first quarter of this year.

Price gains totalled €20 billion, split between equities (€10 billion), debt securities (€5 billion) and derivatives (€5 billion). In addition, investments from net new premiums boosted total assets by €8 billion.

The gains ended four consecutive quarters of declines in pension funds’ assets in 2022, in which their value fell from €1,917 billion to €1,511 billion.

This decline was caused by significant price losses on bonds (which portfolio lost €133 billion) and on interest-rate and other derivatives (€167 billion) due to sharply higher interest rates. In addition, equities (€41 billion) and investment funds (€62 billion) also fell in value.

PRIVATE PROPERTY

AsianInvestor also reported in June that DNB data showed Asian property investments owned by Dutch pension funds were set for large write-downs, as long-awaited sales of private real estate finally crystalised losses in the sector.

Private investments make up the majority of Dutch pension fund property allocations. In 2022, total listed property investments held by Dutch funds fell €15.1 billion or 26%. Those in unlisted property investments fell by just 0.7 billion, or 1.5%.

“The price mutation of directly held real estate lags behind, as the valuation of properties takes place only a few times during the year,” DNB noted in a March report.

First quarter data released by the largest pension funds show unlisted real estate investments falling.

At PFZW, the second largest fund, private real estate investments fell by 1.7%, or €336 million, in the first quarter of 2023.

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