Magazine article American Banker

Dutch Market Limits Investors So Guilders Go over the Dikes

Magazine article American Banker

Dutch Market Limits Investors So Guilders Go over the Dikes

Article excerpt

AMSTERDAM -- Dutch institutional investors are seeking new opportunities abroad, and especially in the United States, because they are outgrowing the domestic guilder market.

The recorded foreign investment of Dutch life assurance companies and private pension funds rose about 60% in terms of guilders between the end of 1981 and September 1983, the latest date for which statistics are available. The rise was 36% even in terms of the dollar, which appreciated by 21% against the guilder during that period.

Moreover, the recorded increase of external investment by Dutch institutions understates the true rise because another large part of diversification has taken the form of investment in real estate abroad, which is not separately broken down in the data on total real estate holdings.

New foreign real estate investment has been concentrated mainly in the United States, West Germany, and France. For instance, a major Dutch pension fund has recently been investing in a hotel in Orlando, Florida, to share in the opportunities provided by the Disney World's tourist flow.

The savings rate is high in the Netherlands compared with that in many other mature industrialized countries. In 1983, gross capital formation was the equivalent of 18% of gross domestic product, compared with about 15-1/2% in Britain and 13-1/2% in the United States. Moreover, the Netherlands stands out, with the United Kingdom, as having an exceptionally large proportion of contractual savings, which pour, month by month, into life assurance companies and private pension funds.

As a result, life assurance companies and pension funds together provide about 60% of all funds raised on the Dutch capital market. As fish of that size, they cannot swim very flexibly in their home pond. A shift into fresh waters has become imperative for them, even at the cost of some marginal mismatch between foreign currency assets and their liabilities, which are almost exclusively in guilders.

It would be wrong, however, to exaggerate the shift. Although the external claims of life assurance companies rose by 83% in guilder terms from the end of 1981 to September 1983, the proportion of external assets in their portfolios rose only from 1.8% to 2.8% of their total assets.

One major Dutch institution at present plans to increase its foreign investment, including foreign real estate, from less than 5% of its total assets to 15% or even 20% over the next six years. But this is an exceptional case. Dutch institutions, whose foreign investment excluding real estate now amounts to about 5-1/2% of total investment, are not expected to increase that proportion to more than about 10%.

Yet the scope for greater diversification is there. …

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