Dutch Pension Fund invests 5% in gold, reduces its bond exposure
(Kitco News) - Gold continues to be an attractive safe-haven asset for pension funds looking for options in a world awash with negative-yielding bonds.
According to a report from Investment & Pensions Europe, a Dutch pension fund for specialty chemicals firm DSM is the latest firm to jump into the precious metal, allocating 5% of its portfolio to the precious metal.
The European media outlet said that the pension fund started building its precious metal exposure in October 2020. The company said that it reduced its bond exposure by 10%, investing half of the proceeds into gold and the rest split between equities, real estate, and infrastructure.
The company said that it started buying gold after conducting an asset and liability management (ALM) study in 2020.
“This study showed adding gold to our asset mix had a clear added value because of its diversification benefits,” the fund is quoted as saying in the article. “As a result, the expected risk for the portfolio has been reduced while the expected return has not.”
The pension fund bought its last portion of gold in April to reach its strategic allocation of 5%. The fund ’s assets total €7.7 billion, which suggests it owns about €386 million in gold. The fund said it invests in physical gold, which is stored at a Swiss bank.
DSM is joining a handful of pension funds that have been taking a closer look at gold to balance risks in their portfolio.
Although gold is still relatively under-owned by pension funds, a recent report from the World Gold Council said that interest is growing.
In a survey published by the World Gold Council May 4, roughly 30% of UK pension funds said they were looking to increase their exposure to gold.
“With many pension funds looking to de-risk their long-term liabilities, there is a need to protect yield as well as generate it. For this reason, we believe that an investment in gold can address these concerns. During periods of heightened risk and uncertainty, gold has historically benefitted from flight-to-quality flows, providing both positive returns and helping to reduce portfolio losses,” Krishan Gopaul, senior analyst at World Gold Council, said in the report.
However, gold ’s allocation is still relatively small compared to other asset classes. According to the report, nearly 60% of portfolios surveyed said they would increase their exposure to infrastructure. In second place was private equity, with 40% of respondents saying they would increase their exposure.