Dutch pensions to invest €100bn in risky assets boosting Europe’s defence efforts

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Dutch pension funds are set to plough tens of billions of euros into risky assets in Europe, as their transfer to a system with out fastened advantages helps the continent’s efforts to appeal to funding and bolster its defence sector.

Reforms being rolled out in the Netherlands could lead on to its €2tn pensions trade — one of many largest in the world — boosting funding in personal fairness and credit score investments by about 5 proportion factors over the subsequent 5 years, mentioned the pinnacle of the most important Dutch asset supervisor.

The “largest half” of the anticipated €100bn is predicted to be deployed in Europe owing to “extra enticing valuations” and a want to have a “real-world impression”, Ronald Wuijster, chief govt of APG Asset Administration, advised the Monetary Occasions.

He added that Dutch funds would possibly have the ability to do “much more” to finance defence initiatives in the continent, saying that APG had already invested about €2bn in corporations that contribute to the defence trade.

Wuijster’s feedback got here because the EU has been beneath strain to increase defence funding, with former European Central Financial institution president Mario Draghi final yr calling on the bloc to increase investments by €800bn yearly to sustain with US and China. US President Donald Trump has additionally demanded governments shoulder a higher burden for Europe’s safety.

“There used to be a penalty for personal investments and for credit score threat that’s now diminishing, which will increase the finances to take extra threat,” Wuijster mentioned.

He added that the reforms would enable buyers to think about assets with “a barely greater threat profile”, predicting a rise of “five-ish” proportion factors in risky assets, in addition to greater allocation to personal assets and credit score spreads. 

In 2023, Dutch senators handed a legislation to transition the nation’s occupational pension system right into a mannequin in which pension funds now not assure a set retirement revenue to members. The transition is predicted to happen between 2025 and 2028.

The previous outlined profit system pushed the schemes into liquid, low-risk assets equivalent to authorities bonds by requiring pension funds to intently match assets with long-term pensions owed.

The funds will now have the ability to set goal returns that may fluctuate with market actions, eradicating some legal responsibility pushed constraints and growing their threat urge for food.

This was a big step as a result of “psychologically, it places the funds nearer to common lifecycle investing . . . and on that measure, Dutch pensions are most likely taking too little threat”, Wuijster mentioned. 

ABP, which is liable for the pensions of Dutch civil servants and is by far the biggest fund managed by APG with €544bn of assets, expects to transition to the brand new system by 2027.

On the finish of final yr, simply over 1 / 4 of ABP’s assets have been in personal markets. About 40 per cent of its personal fairness publicity was in Europe, which additionally had 57 per cent of its world allocation in personal credit score.

Wuijster mentioned this geographical steadiness might proceed beneath the brand new system, and that the shift into personal assets and credit score could be “a really gradual course of” happening “over the subsequent 5 years”.