Industry Updates

Dutch pension fund ABP turns to passive investing

‘The added value of active investing within an asset class is limited and occurs mainly in illiquid asset classes’

Jamie Gordon

Dutch euro

Dutch civil service pension scheme ABP is set to shift its liquid assets to passives, marking a major shift for the last Dutch provider that invests fully actively. 

The pension fund for government and education employees first announced the changes in a revised version of its ‘investment beliefs’ statement last November. 

It said: “Academic research shows that the return on an investment portfolio is largely explained by the choice of asset class mix.  

“The added value of active investing within an asset class is limited and occurs mainly in illiquid asset classes. Active investing also leads to additional costs.”

ABP added index-based investing would become the “starting point” of its asset allocation for the liquid portion of its portfolio, with active management remaining central to its illiquid allocations.

“We compile the index, which is basically a basket of investments, ourselves on the basis of long-term active strategic choices based on our sustainable and responsible investment policy,” it continued.

“We give the asset manager objectives, which ensure that the focus is on achieving long-term returns in a sustainable manner.”

Its asset manager, APG, launched an index-based product in late 2021 for Bpf Bouw, with an ABP spokesperson at the time stating it remained committed to active investing as it wanted to make “conscious investment choices”.

It noted it could still use active management in its liquid asset allocations if there is “sufficient evidence” it will “structurally contribute more to reaching our ambition than index investing”, net of fees. 

ABP did not respond when asked what had led its decision to pursue passive investing.

In its 2022 annual report published in April, the pension fund said: “We are looking critically at the financial impact of index investing and are developing index funds for our asset management clients.”

The Dutch provider is only the latest to increase its passive investing footprint in recent months. 

Last month, the world’s largest pension fund – Japan’s Government Pension Investment Fund (GPIF) – allocated $3.7bn to track the Morningstar Japan ex-REIT Gender Diversity Tilt index, having previously allocated $3.4bn to an equivalent broad developed markets index in December 2020.

April also saw Finnish pension fund Ilmarinen rotate $2bn from one ETF to seed the Xtrackers MSCI USA Climate Action Equity ETF (USCA), earning it headlines of ‘biggest ETF launch in history’. 

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