Reserve management

De Nederlandsche Bank (DNB) manages over EUR 38 billion in investments, making it one of the larger asset managers in the Netherlands. The Financial Markets Division is responsible for DNB's portfolio and financial risk management. This Division is also responsible for managing the gold reserves and the assets that DNB holds for official financial institutions, such as the IMF, ECB and other central banks.

These reserves and financial assets are used to underpin confidence in the Dutch financial system and to support common European monetary policy and DNB's role in financial stability. That is why the composition of DNB's portfolio and the instruments in which it invests must meet high standards, specifically in terms of their credit quality and liquidity. Attention is also paid to socially responsible investment (SRI), to promote a more sustainable economy while at the same time minimising the long-term environmental, social and governance (ESG) risks. Within these parameters, it is the aim of DNB to optimise the risk-return profile of its investments. The profits DNB generates on managing these assets are, if possible, transferred to its sole shareholder, the Dutch State.

As an asset manager, DNB is active on the financial markets on a daily basis. Market knowledge and market contacts are essential for this activity. By promptly identifying, analysing and reporting market developments, DNB also builds up knowledge that is vital for it to effectively perform its other monetary and financial stability tasks. As the first central bank to be a signatory to the Principles for Responsible Investment, DNB hopes to set a good example and to encourage more financial institutions to adopt sustainable investment practices.

DNB's investment portfolio

DNB's reserves and financial assets include an internally managed portfolio comprising investments in government paper and semi-government paper and an externally managed portfolio comprising investments in corporate bonds and equities. Other internal tasks include managing gold reserves, holding Special Drawing Rights (SDR allocations from the IMF) and managing the ECB’s Japanese yen portfolio.

The portfolios and management tasks are briefly explained below.  

Internally managed portfolio

Euro investments
The euro portfolio has a historical background. Before the introduction of the euro, it consisted of DNB’s deutschmark (DEM) reserves. From 1999, these were denominated in euros. The euro portfolio primarily comprises investment-grade government bonds and semi-government bonds with short-term maturities. The euro portfolio and the ECB's asset purchase programme are managed separately.

US dollar investments
The dollar portfolio comprises US Treasury bonds and semi-government bonds with short-term maturities. Forward exchange contracts are used to hedge the currency risk in the portfolio. US dollars are held to meet the need for any foreign exchange operations with the ECB, IMF or the Dutch State, or to meet the funding requirements of Dutch banks. If the ECB's own reserves are insufficient for interventions, it can call on the reserves of the central banks in the Eurosystem. The IMF can also designate DNB to provide dollars to fund its lending operations. The Dutch State can also call on DNB's dollar reserves to settle transactions in foreign currency. In order to be able to quickly meet any requests, it is important that the dollar portfolio is sufficiently liquid.

Japanese yen
Apart from its own reserves, DNB also manages part of the ECB’s reserves in Japanese yen. In the framework of the European Reserve Management Services (ERMS), DNB also provides services to other central banks outside the euro area.

In times of financial crisis, DNB's physical gold stock functions as an ultimate reserve asset and as an anchor of trust. The gold stock serves to cover ultimate systemic risks. To ensure a wide geographical distribution, the gold reserves are held at different locations in the world.

Part of DNB's internally managed portfolio comprises socially responsible bonds, such as bonds issued by development banks and “green” bonds issued by supranational institutions and semi-government bodies.

Externally managed portfolio

The equity portfolio provides diversification with regard to fixed-income securities at the desired risk-return ratio. Equity investments are managed externally and are globally benchmarked. DNB periodically selects the managers and monitors and evaluates their performance.

Corporate bonds
The investment grade and high yield portfolios comprise global corporate bonds, and they are managed externally. Both portfolios serve to further diversify the total portfolio and have the potential to generate higher returns in the long term, without elevating risk at total portfolio level. As is the case with equities, DNB selects the fund managers and monitors their performance.

Socially responsible investment is also integrated into the externally managed portfolio. DNB selects managers based on their ESG policy, with attention to excluding controversial weapons, ensuring active shareholder engagement and the integration of ESG in investment decisions and impact investment.