PGGM ILS growth to $8.5bn at mid-year 2022 a likely trigger for downsizing

Netherlands-based pension investor PGGM had increased the size of its insurance-linked securities (ILS) market investments to roughly US $8.5 billion (EUR 8.2bn) as of the middle of the year, with this growth at a time of overall asset devaluation likely the trigger for its more recent downsizing in the asset class..

The pension investor remains the largest single allocator to the insurance-linked securities (ILS) market and has been growing the portfolio of investments steadily through recent years, having begun allocating to the space back in 2006.

PGGM’s ILS portfolio had reached EUR 7.2 billion by the end of 2021, at which time the US dollar conversion would have been closer to US $8.2 billion.

So the June 30th 2022 ILS portfolio AuM of PGGM, having reached EUR 8.2 billion, represented quite a significant increase (in Euro terms) over the first-half of this year.

Which has likely been a contributing factor in the pension investors recent decision to reduce the overall size of its insurance-linked securities (ILS) market investments.

As we explained last month, PGGM’s ILS portfolio had grown substantially above the pension investors’ target allocation percentage, resulting in a need to manage down the allocation somewhat to remain within the target range.

Previously, PGGM’s insurance-linked investment team had been growing their ILS allocations to reach a 2.5% of overall assets target.

But with the effects of global volatility in asset pricing denting the valuation of the entire PGGM investment portfolio, the ILS portion had outgrown its target limit.

PGGM’s overall reported AuM had been EUR 293.5 billion at Dec 31st 2021, but by June 30th 2022 this had fallen to EUR 241 billion.

At which stage the EUR 8.2 billion ILS portfolio had reached roughly 3.4% of overall assets, well-above the target percentage.

By September 30th, PGGM’s overall assets had fallen a little further to EUR 231 billion.

It’s likely the overall AuM figure for PGGM has risen somewhat by now, with many asset values having recovered at least some of their declines in global markets.

But it is unlikely to see a sufficient recovery quickly enough to negate the need to downsize the ILS portfolio, a little at least.

As we explained some weeks ago, relatively strict asset allocation protocols in the pension community can become a driver for some investors to downsize their allocations to insurance-linked securities (ILS).

With PGGM growing its ILS portfolio so strongly, just through the period that global asset values fell, it drove the allocation well-beyond its target limits, it now seems.

PGGM remains the largest single investor listed in our directory of pension funds and sovereign wealth funds investing in ILS and reinsurance.