Interview Yvette Hennen and Leon Verboon

interview

Inflation, falling interest rates, geopolitical unrest, and rapid technological changes: investors faced all these in 2024. How can pension investments successfully navigate such a turbulent year? Risk & Investment Officer Yvette Hennen and Investment Analyst Leon Verboon from Shell Pensioenbureau Nederland explain what this means for SSPF's investment strategy.

What were the key developments on the financial markets in 2024?
Yvette: “Economic growth in 2024 showed a varied global picture. The United States' economy grew by 2.7%, significantly outperforming Europe, where growth remained limited to 0.9%. Declining inflation enabled central banks to lower interest rates, with the European Central Bank (ECB) cutting rates several times. This resulted in positive sentiment on the financial markets. But inflation and interest rates weren't the only determining factors; geopolitical tensions also played a significant role. Particularly, the situations in the Middle East and Ukraine dominated headlines. Politically, the strong rise of right-wing parties across various countries was notable. The re-election of Donald Trump contributed positively to the stock market climate, as his plans for reduced regulation were well-received by investors. Additionally, technology had a substantial impact, particularly through the theme of Artificial Intelligence (AI). It contributed to equity returns exceeding 25% in developed markets (measured in euros – unhedged). The 'Magnificent Seven'—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—played a significant role in the exceptionally positive performance of global equities. In short, 2024 was a dynamic year, filled with developments, opportunities, and uncertainties.”

And what did this mean for SSPF's investments?
Leon: “SSPF achieved a return of 3%. The investment portfolio comprises two main components: Fixed Income (60%) and 'Return Seeking Assets' (40%). The second component—the 'Return Seeking Assets' category—achieved a return of nearly 8%. This category includes equities, high-yield bonds, emerging market debt, private equity, hedge funds, and real estate. Nearly all asset classes within this category performed positively, with the exception of real estate, which continued to be impacted by higher interest rates and limited liquidity. However, initial signs of recovery are becoming visible, especially in Europe.”

“The Fixed Income component aims to hedge interest rate risk and deliver a moderate return above the risk-free rate. This segment recorded a return of 0.7%. Key drivers included interest rate and inflation developments, as well as movements in bond spreads throughout the year.”

“The investment mix at SSPF is carefully composed, taking into account the fund's objectives, the composition of the participant population, and sufficient portfolio diversification.”

Yvette Hennen 

Did developments surrounding the new pension scheme influence the investment policy?
Yvette: “When it became clear that Shell Netherlands and the Central Works Council intended to transfer accrued pension rights to the new pension scheme, we examined how best to protect the investment portfolio from downside risks. This analysis considered both the transitional period and the new regulations. At the same time, SSPF is a long-term investor. To continue offering participants the prospect of a robust pension, value growth remains essential. Therefore, we decided to increase nominal interest-rate hedging to cover 100% of obligations. Simultaneously, we ceased real interest-rate hedging. As a result, the nominal funding ratio is less sensitive to interest-rate fluctuations approaching the transition, while preserving upside potential, such as returns from equities. Another significant development in 2024 was the selection of a new asset manager. In preparation for the new pension system, SSPF conducted thorough research to identify the most suitable candidate. Following an extensive selection process involving internal and external experts, BlackRock was chosen. This major asset manager possesses extensive experience with complex portfolios, robust risk management anchored within its organization, an office in Amsterdam, and comprehensive knowledge of the Dutch pension market and evolving regulations.”

Leon Verboon 

How does SSPF handle ESG?
Leon: “SSPF has its own ESG policy, with particular emphasis on climate and governance. We make choices tailored specifically to SSPF participants. Key aspects of our ESG approach include engagement (dialogue with companies), voting behavior at shareholder meetings, and excluding companies that violate norms in multiple areas or have significant negative impacts. Additionally, we use customized benchmarks for equities and corporate bonds that promote specific ESG criteria. SSPF aims to reduce its carbon footprint, ultimately striving for a net-zero CO₂ emission from the portfolio by 2050.”

Which developments will you closely monitor in 2025?
Yvette: “2025 promises to be another dynamic year. Organizationally, the transition to a new asset manager and further preparations for implementing the new pension scheme will be central. These activities require time, but they ensure that SSPF enters the future robustly and well-prepared. Developments in financial markets will largely depend on how effectively the new U.S. president implements his plans. Additionally, we will closely watch Dutch inflation, which stubbornly remains higher than in the rest of Europe.”

What is ESG?
ESG stands for Environment, Social, and Governance. It is a set of criteria used to assess the sustainability and social impact of an investment or company.