The assets of Dutch pension funds rose by 2 per cent to €1,687bn in the first quarter (Q1) of 2024, according to figures compiled by De Nederlandsche Bank (DNB).

DNB attributed the positive return to strong results on pension funds’ investments in equities and participations of nearly €36bn, due to sharply rising global stock markets over Q1.

“Stock markets worldwide recorded strong price gains over the first quarter of 2024. For example, the MSCI-World index rose 11 per cent in this period converted into euros. Price gains by pension funds on their equity investments amounted to €26bn in the first quarter. Units in mutual funds simultaneously became worth €10bn more,” DNB commented.

However, gains on equities and participations were offset by losses on investments in debt securities (€9.4bn and on interest rate derivatives (€2bn). DNB said the declines were caused by increased interest rates (over a maturity of up to 10 years).

“With these instruments, pension funds aim to hedge part of the interest rate risk they incur on their long-term commitments to participants. The present value of these liabilities depends heavily on the nominal interest rate term structure. When interest rates rise, the current value of the liabilities decreases and vice versa,” DNB noted.

While the positions in debt securities and derivatives decreased in value, the price effect on pension liabilities for the first quarter of 2024 was positive, albeit marginal at €0.9bn.

DNB explained: “In other words, losses were incurred on the hedging of interest rate risk over the liabilities where the liabilities themselves remained virtually unchanged. This counter-intuitive difference is caused by the ‘pivoting’ of the interest rate term structure in the fourth quarter of 2024. Over maturities up to 10 years, interest rates rose, while they fell slightly over longer maturities.”

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