Short-termism of long-term investors? The investment behaviour of Dutch insurance companies and pension funds

Countercyclical long-term investment strategies of insurance companies and pension funds (ICPFs) can support the stability of the financial system. Yet there is limited understanding of how ICPFs invest during market shocks, such as the global financial crisis and the European sovereign debt crisis. The intention of this paper is to fill that lacuna by investigating Dutch ICPFs’ equity and sovereign bond portfolios. A first analysis shows that while ICs massively sold equities during the crisis, PFs kept buying equities as markets tumbled. Results from our regression analysis over a longer time horizon suggest procyclical behaviour by ICs, while for PFs we do not find evidence for procyclical or countercyclical investment behaviour. Moreover, both ICs and PFs sold their affected sovereign bonds prior to a rating downgrade. This could be considered as destabilising at a macro-level, as it may accelerate the deteriorating financing conditions of the affected countries.
 
Keywords: microprudential, macroprudential, investment behaviour, pension funds, insurance companies, procyclicality, Solvency II, global financial crisis.
JEL classification: E44, G01, G11, G22, G28.

Working paper no. 489.