Significant Investment Trends in the Netherlands

Dutch pension funds are on the brink of a major transformation, with plans to invest tens of billions of euros into riskier assets across Europe. This shift is facilitated by the country’s transition to a pension system that no longer guarantees fixed benefits, aligning with broader efforts to enhance investment and strengthen Europe’s defense capabilities.

Increased Allocation Toward Private Investments

According to Ronald Wuijster, CEO of APG Asset Management, the reforms within the Netherlands’ €2 trillion pension sector could increase allocations to private equity and credit investments by around 5 percentage points over the next five years. This change is expected to direct approximately €100 billion into investments, with a significant portion aimed at European markets due to attractive valuations.

Supporting Europe’s Defense Sector

Discussing the potential for enhanced defense funding, Wuijster noted that Dutch pension funds are already contributing to defense-related investments, with APG having invested about €2 billion in companies associated with this sector. This move comes in the context of calls from EU leaders for increased defense spending, particularly regarding the investment gap compared to the US and China.

“There used to be a penalty for private investments and for credit risk that is now diminishing, which increases the budget to take more risk,” said Wuijster.

Changes in Pension Investment Strategy

The recent legislative changes in the Netherlands allow pension funds to pursue a more flexible investment strategy, moving away from the traditional defined benefit system that necessitated investments in low-risk assets like government bonds. This shift provides the opportunity for funds to pursue variable returns and undertake investments with a higher risk profile.

Future Expectations and Gradual Transition

The transition to this new pension model is anticipated to occur between 2025 and 2028. For example, ABP, which manages the pensions for Dutch civil servants and oversees assets totaling €544 billion, aims to complete its transition by 2027. Currently, over a quarter of ABP’s assets are allocated to private markets, with approximately 40% of its private equity investments concentrated in Europe.

“This geographical balance could continue under the new system,” Wuijster commented, adding that the gradual move toward allocating funds to private and credit assets will unfold over the next five years.