Dutch Pension Assets Can Help Mortgage Funding, PGGM Says

Dutch investor PGGM NV said the country’s pension funds, with more than $1 trillion in assets, could help ease a housing slump by shifting money to funding mortgages that are burdening banks’ balance sheets.

The retirement funds, which have suffered as Europe’s debt crisis and low interest rates hurt government bond yields and drove up liabilities, could benefit from increased margins on mortgages, said Eloy Lindeijer, head of investment management at Zeist, Netherlands-based PGGM. Investors could use Dutch residential mortgage-backed securities to hedge interest rate risks, he said.

“Before the 2008 crisis we exited the mortgage market as we considered margins on mortgages far too low to make them interesting,” Lindeijer said in an interview. “Now margins have risen, and the market could benefit if large Dutch investors become more active. It is high quality paper with a very low credit risk. And we understand it well as it is close to home.”

The Netherlands’ mortgage debt is among the world’s highest, amounting to 110 percent of gross domestic product, the Dutch central bank said in March. A 500 billion-euro ($625 billion) difference between outstanding loans and retail savings at banks makes lenders reliant on market funding, it said.

Dutch house prices have dropped more than 10 percent from a peak in 2008, according to data from the country’s statistical agency. They will continue to drop into 2014 because of stricter mortgage lending rules and a reduction of the homeowner tax break that spurred the lending boom, the central bank forecasts.

Liquidity Gap

Pension funds investing in Dutch mortgage securities “wouldn’t be the solution to the Dutch liquidity gap,” said Lindeijer, 47. “It might help boost residential mortgage-backed securities though if foreign investors see Dutch pension funds are investing.”

The 2008 financial crisis, making investors wary of securitized products, pushed up funding costs for banks. To compensate, banks have increased mortgage rates, driving interest rates on savings deposits and mortgages to the highest levels in Europe, the central bank said in a report last month.

Moody’s Review

Moody’s Investors Service today placed on review for downgrade the ratings of eight notes in two residential mortgage-backed securities in the Netherlands. “Today’s rating action reflects the increased counterparty risk following the deterioration in credit quality of Dutch banks acting in various roles in the affected RMBS transactions,” Moody’s said in a statement.

The nation’s pension funds held 0.5 percent of Dutch securitizations at the end of 2011, according to the country’s central bank. PGGM manages about 125 billion euros for six pension funds. Pensioenfonds Zorg en Welzijn, the Netherlands second-largest retirement plan, is its biggest client with 120 billion euros in assets at the end of May.

“We are relatively under-invested in Dutch mortgages,” said Lindeijer, who became PGGM’s chief of investment management in September after more than 20 years at the Dutch central bank. In his last job there, he was director of the bank’s financial markets division.

The Netherlands has the euro currency union’s biggest pension industry, with 913 billion euros in assets at the end of the first quarter, data from the Dutch central bank show. The assets are held in collective plans run by industry, company and occupational pension funds.

To contact the reporter on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net