1. The ABP Model: Succes Factors Jean Frijns ICPM / Netspar / Maastricht University Discussion Forum, October 30, 2007

2. Succes Factors Clear mission (contract) and structure Allocation Management and organization

3. ABP: Transition From State Pension Scheme to Industry-Wide Pension Fund In 1996 ABP became an industry-wide pension fund  Own legal entity (foundation)  Assets are owned by the foundation Board is not truly independent Board has wide ranging responsibilities and is squeezed between fiduciary duties and interests sponsors Tradition of ‘contribution holidays’ persisted after 1996:  Disruptive events in 2002

4. Challenges Ahead Define pension fund as a risk sharing cooperative of participants  Intergenerational risk sharing leads to complex pension deal and fuzzy ownership rights  Risk of losing support of either the young or of the retired generation (the middle generation is squeezed between) Lack of clear ownership makes system vulnerable for political interference Alternative is DC/DB system along TIAA-CREF lines

5. ABP Allocation Shifts Shift in the 90’s to more risk taking strategy for ABP was ‘no-brainer’  Substantial improvement in return-risk trade-off  Developments equity and fixed income markets in the late nineties ‘proved us right’ ALM took into account the structure of the liabilities  To fine tune the degree of risk aversion  Clear sight on medium term risks (funding ratio risk): need for buffers  Initial impact on duration allocation rather limited due to flaw in measurement liabilities and fear for inflation

6. Allocation challenges Maintaining a long term risk taking allocation strategy under short term balance sheet constraints Hedging long term state variable risks  Interest rate risk  Inflation risk LTRT vs. ALM vs. LDI  LTRT is appropriate for pension savings  AML is appropriate for pf  LDI is appropriate for termination plan

7. ABP Built Up Strong In-House Organization Choice for in house management  Strategy and allocation  Mix of internal and external portfolio management  Monitoring and control Alternative assets: joint ventures and captives  Captive real estate funds in NL  The NIBC saga  Alpinvest for private equity  New Holland Capital for hedge funds

8. Organization Challenges for ABP Expertise, location and remuneration  Offices in Amsterdam, New York and Hong Kong  Remuneration is continuous head ache Working for third party clients  Separation between pf and manager is consequence of Dutch regulation  Dedicated model or hybrid model (compare Hermes)?  Sustainable model?

9. The Way Forward More complete pension contract to be expected  Retired participants ask for de-risking once the funding ratio is sufficiently high Asset allocation will be more in line with life cycle investing  Feasible under more complete pension contract Will the separation of fund and management organization weaken or strengthen ABP?  I don’t know