The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Why pension funds need commodity exposure

Pension funds’ need to outpace the effects of inflation has prompted growing exposure to alternative investments. Commodities look to be a good source of such diversification. But should exposure be direct or through an index? And if the index route is chosen, which benchmark is to be preferred?

Participants

RB, Watson Wyatt

   Commodities is interesting, particularly as a diversifying asset class. We’ve been talking to our client base in this area for the last few years. However, the take-up of commodities from the institutional base is still limited. I think when investors are looking at this asset class, it is from a beta, or an asset exposure perspective. But things are moving quickly and I think there are interesting alpha opportunities in this area as well as opportunities for different structures that might be more appealing than some of the benchmark indices. I want to ask Jelle, as a long-standing investor in commodities, to describe PGGM’s experience and how its investments evolved.

JB, PGGM  Our basic proposition is that we promise pensions linked to wage inflation. So we need investment returns to meet our liabilities. A lot of investment risk is equity risk – that is what the market offers, there’s a lot of liquidity there, and over the years PGGM’s allocation to equity has increased at the expense of fixed income.

But with a growing allocation to equities the need for diversification grows and so the allocation to alternatives has also grown – initially real estate, private equity.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree