The transition to the new Dutch pension contract (“Wet toekomst pensioenen”, or Wtp) is currently underway for most pension funds. This article focusses on the role pooled swap funds can play in hedging interest rate risk under the new flexible pension arrangement (“Flexibele pensioenregeling” or FPR).
In an FPR scheme, interest rate hedging is directly implemented through the investments held by each individual member. This means that, in most cases, it needs to be carried out via unitized pooled investment funds or mandates. Pooled swap funds are therefore a useful tool under FPR. They exist in different flavors, but usually operate in a similar manner – a target interest rate sensitivity is achieved and managed by placing euro interest rate swaps in a collective investment fund together with cash or bonds. The cash or bonds are then used to meet the margin requirements of the interest rate swaps.
This article focuses on back-testing the use of pooled swap funds in an FPR setting. We discuss the resulting member experience and how the strategic importance of these funds can be communicated to them. For brevity, we focus in this article on a back-test over the period 2005-2024. When constructing an FPR lifecycle strategy, this would likely be supplemented by a stochastic ALM analysis as an integral part of the design process
in VBA Journaal door Oliver Warren & David van Bragt