Amaranth hits Dutch pensions via plunge in commodity holdings

By Neil Behrmann

Stichting Pensioenfonds ABP, Europe 's largest retirement plan, said that its commodity investments plunged by 15.4% in the third quarter, wiping out previous gains. ABP with €201 billion ($252 bn) in assets has neither direct nor indirect investments in Amaranth, a spokesman said.  But its commodity holdings are via commodity index swaps with a high energy weighting, according to previous disclosures.

Despite the poor performance of commodities, ABP returned 3.9% in the third quarter and was up by 5.4% in the first nine months compared with 12.8% in the whole of 2005.

The $6.4 billion Amaranth losses in the natural gas market played a big role in third quarter energy price slides, according to dealers. They thus contributed to the decline in ABP's commodity allocation which was around 2.5% or around €5.1 billion ($6.3 bn) of the total portfolio at the end of 2005. The slide in the third quarter wiped out previous gains this year so that in the nine months ended September commodity holdings fell by 14% or an estimated €714 million ($895m) compared with a 23.2% rise in the whole of 2005.

"Other investments", notably hedge funds and currency overlay funds were almost flat in the third quarter rising by 0.1% so that their appreciation in the first nine months was 3.5% compared with 4.8% in 2005. The hedge fund strategies, compared with commodities are low volatility. 

Assets that helped boost ABP performance in the third quarter were real estate, up, 9.7%, private equity, up 8.4%, equities, an increase of 4.5% and  fixed income securities, positive 2.7%.

Similarly to ABP, the Amaranth fiasco played a major role in PGGM's  commodity index swaps' 18.1% third quarter slide.  The €3.6 billion ($4.5 bn) energy and other commodity index holdings, accounts for 4.7% of the entire €77 billion ($96 bn) portfolio.  It also has a €836 million ($1bn) hedge fund allocation, or 1% of the total.

In the third quarter the entire PGGM portfolio rose by 3.1% and year to date by 6.3%, also helped by real estate, private equity and equity gains.

PGGM has previously stated that it neither had a direct or nor indirect holding in Amaranth.  Significantly, however, Else Bos, Chief Executive Officer Investments has issued a statement to concerned PGGM pensioners outlining the strategy behind its hedge fund investments. She also defended the decision to invest indirectly in activist hedge fund managers.

Hedge funds are included in PGGM's  'portfolio of strategies', in which it combines "several innovative investment strategies", including currency overlay to achieve an absolute positive return. The latest quarterly report shows that the portfolio of strategies, including hedge funds, accounted for €1.58 billion ($1.98bn) or 2% of the total portfolio, returning negative 0.2% in the third quarter and 3.8% year to date. 

"By combining investments in hedge funds with other investments, the stability of the total portfolio improves, " contends Boss. If PGGM cannot assess the risks or considers that (hedge funds) are not being properly managed, we do not invest in such a fund." 

"Investments which we outsource must comply with the guidelines issued by the Dutch Central Bank, which clearly states that outsourcing does not relieve us of our responsibility."

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