Following four quarters of declining assets, the assets under management of Dutch pension funds increased again in the first quarter of 2023. This increase can mainly be ascribed to price gains, especially of equities. It is noteworthy that pension funds sold foreign (mainly US) holdings and acquired Dutch investments in the first quarter of 2023, after also selling many foreign investments in 2022.
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Pension funds’ assets under management rose 2% in the first quarter of this year to €1,542 billion. Pension funds posted price gains totalling €20 billion, split between equities (€10 billion), debt securities (€5 billion) and derivatives (€5 billion). In addition, new investments financed from net premiums received (premiums minus benefits) boosted managed assets by €8 billion.
This marked the end of 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 (€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.
The financial health of pension funds depends not only on the development of their managed assets, but also on their liabilities. Taken together, these determine the funding ratio, which improved sharply in 2022 despite lagging investment performance, and also increased slightly in the first quarter of 2023 (Dutch pension sector’s funding ratio improves).
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Pension funds invest the bulk of their assets abroad, either directly or indirectly through affiliated Dutch investment funds. As of the first quarter of 2023, investments in foreign equities, debt securities and loans amounted to €1,056 billion, or 82% of assets under management (excluding derivatives). Most were investments in other European countries (40%) and North America (24%, primarily in the United States).
However, the share of investments in the Netherlands has increased significantly since the beginning of 2022, from 15.7% to 18.3%. The share of investments in the rest of Europe also increased (from 37.5% to 38.9%), mainly at the expense of investments in North America (which decreased from 29.3% to 24.2%). The share of Dutch investments increased in 2022 especially as a consequence of a much sharper decline in investments in North America (-29%) than in the Netherlands (-1%) and the rest of Europe (-10%). Subsequently, in the first quarter of 2023, investments in the Netherlands and other European countries (6%) recovered more strongly than investments in North America (3%).
These developments were driven both by price developments and transactions. In 2022, significantly more North American investments were sold (-19%) than European investments (-7%) or Dutch investments (only -1%). Pension funds sold these investments partly to meet margin requirements associated with derivatives contracts. In addition, the price and foreign exchange results on North American investments were similar to those on Dutch investments (-9%) but significantly lower on European investments (-15%). In the first quarter of 2023, pension funds acquired more Dutch assets on balance (+2%), while foreign investments were sold to a limited extent (-1%).
The differences in geographic development are explained in part by differences in the composition of investments. For example, investments in North America are largely made up of equities and investment fund units (74%), while pension funds invest more in debt securities in Europe (55%); investments in the Netherlands also include mortgage loans and real estate. The geographical shift was thus related to pension funds rebalancing their investment portfolios, which primarily involved selling equity investments.
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