Arizona State Retirement System (ASRS) is seeking opportunities to buy private equity assets in the secondaries market.

ASRS’s $8 billion private equity allocation is focused on the upper-mid and lower-mid market where it mines a sweet spot of market inefficiencies and room for operations improvement. It also runs a growing co-investments program where it is on track to invest 30 per cent of the portfolio with deal flow from GPs as well as from other managers via a separately managed accounts.

That strategy is now complemented by a push into secondaries where ASRS has created another SMA and committed $250 million to invest exclusively in stakes being offloaded by other LPs using a portfolio construction that aligns with its overall strategy and sector focus.

Speaking during the fund’s December 2025 investment committee meeting, deputy chief investment officer Samer Ghaddar argued the case for investing in secondaries where buyers can pick up assets at a discount from sellers who are keen to offload a full basket of assets and where the money is already put to work and in the ground.

Secondaries buyout investments offer compelling long-term growth potential along with favourable cash-flow characteristics, he said, adding that the opportunity has spiked off the back of the rise in continuation vehicles which many GPs approach as an exit opportunity.

“We want to take advantage of GP and LP-led CVs to try and capture this dislocation,” Ghaddar told the investment committee.

Private equity is not overestimating the NAVs

The discussion also touched on investor concerns around whether the NAV of private assets represents true asset value – something that is only revealed at exit. Ghaddar pointed to recent findings that found 76 per cent of exits are higher than their reported NAV.

“We are super confident that private equity is not overestimating the NAVs. No GP wants their numbers to be taken down – they want them taken up, so they are very conservative on pushing up these NAVs.”

Europe accounts for 25 per cent of ASRS’s private equity benchmark. Now Ghaddar expects the portfolio to flip slightly more in favour of Europe where opportunities are opening up in a dislocation that could replicate private equity success in the US.

“We have partnered with a group of managers on direct co-investments across Western Europe,” he said.

Strategy is honed around partnering with specialist managers within technology, healthcare, and industrials, which all benefit from strong, secular growth trends. If single-sector specialists are not accessible, ASRS turns to multi-sector managers, but only where these possess specialist teams with extensive sector expertise. The team also favours managers which focus on value creation operationally rather than depending too heavily on financial engineering and managers.

Headwinds in private equity include unknowns around Federal Reserve policy and the inflation outlook; a difficult fundraising environment, and longer timelines from fund launch to close that are weighing on managers’ ability to raise and deploy capital efficiently.

Still, meaningful tailwinds are also supporting the asset class like the fact that public market valuations remain elevated and continue to trade at a substantial premium to private markets. Additionally, trustees heard that acquisition multiples across many buyout segments have compressed relative to their peak three years ago, creating more attractive entry points for investors.

The recent pickup in M&A activity also reinforces this improving backdrop, and offers another encouraging sign that deal flow is strengthening. The committee also referenced another tailwind in the guise of the democratisation of private equity as the asset class is increasingly found in the portfolios of to high net worth investors, amongst others, meaning that GPs are not just reliant on institutional money. [See Litigation, fees and structures: Why 401(k) plans won’t jump into alts, yet]

Tactical reduction in public equity

ASRS recently tactically reduced its public equity allocation in response to stretched valuations and concerns of what Ghaddar called a “crack in the system”. The fund, which has a target 44 per cent allocation to public equity, lowered its exposure by 2 per cent, equivalent to $1.2 billion, in a  rebalance that will go to fixed income.

The tactical committee meets every month and has been vocal on the risk of today’s high valuations since October.

Public equity returns over the one-year period hit 17 per cent.

Arizona runs an enhanced indexing strategy that takes very little active risk in the portfolio. Strategy is focused on compounding a small excess return, targeting a 25 basis points out performance for the asset class that equates to around $70 million in value add above the benchmark returns each year.

The public equity benchmark is two-thirds US equity and one-third international – ASRS doesn’t invest in China or Hong Kong stocks.

The US remains a core focus, however trustees heard that Europe offers meaningful opportunities for diversification and for narrowing the gap in both exposure and performance. Two-thirds of the $29 billion portfolio is managed in-house; tech stocks make up the majority of the benchmark and Cole Smith, senior public equity portfolio manager noted that although AI fatigue set in in 2025, the portfolio is still benefiting from strong corporate earnings each quarter.

“Sharp corrections can happen when the market is this rich. Earnings are the biggest driver of equity markets so it bodes well,  but we’ve seen the third consecutive year of double digit growth in equity in 2025,” he said.

A few key issues are front of mind for the private markets team at the Investment Fund for Foundations (TIFF) Investment Management. The $9 billion asset manager, which serves around 500 foundation and endowment clients in the US, allocates around $3 billion to private markets and is famed for its venture and private equity allocation.

One is to ensure TIFF remains on the right side of the emerging winners and losers in the AI transformation, explains Brendon Parry, who joined TIFF in 2011 and serves as head of private markets, deputy CIO and managing director.

Fearful of missing out, investors have ploughed into AI and snapped up assets which have opened the door to mistakes like overpaying for companies that don’t prove as successful as they hoped, or even investing in fraudulent companies, he tells Top1000funds.com.

Positively, he notices managers intentionally layering AI onto existing businesses in ways that will solve internal pain points and increase efficiency. But he also predicts a gulf opening between VC-backed AI native companies and a cohort of also-rans, particularly those that date from before the most recent AI wave.

For example, companies offering software-as-a-service could potentially struggle to harness the efficiencies of rolling out AI compared to an AI-first competitor, which will impact their ability to retain customers and grow, he suggests.

“We generally feel confident about the companies we own in sectors most affected by AI transformation. However, when you examine the population of venture-backed companies that were started before this big AI wave but also missed the exit window in the hype cycle in 2020-2022, the question now is: are they going to be destroyed by an AI native company or be able adapt and compete against this wave of AI native businesses?”

Concerns about venture exits and NAV loans

Parry highlights that the exit market for private equity appears more buoyant today as more portfolio companies start to hire bankers and look to test the market.

But he says exits remain slow for venture-backed companies, weighed down by the mixed performance of companies post-IPO. That backlog is leading VC-backed companies to stay private for longer, delaying pushing for the exit because of the risk of selling out at unfavourable prices.

But he says holding off on exiting requires ensuring that the underlying portfolio is healthy, and a company is still creating value and growing in EBITDA.

“The companies in our portfolio are still accruing value and, at some point, will exit. The challenging exit market today is not top of mind for us because we believe our portfolio companies are still heading in this right direction,” he says.

So-called net asset value (NAV) loans whereby private equity investors borrow against their portfolio’s underlying assets to provide liquidity, extend investment, or offer early returns to investors are also a concern.

He is more comfortable with NAV loans being used to re-invest in the underlying portfolio, particularly with follow-on M&A in existing portfolio companies. But he doesn’t want the extra capital raised from LPs to be used as a source of funds to get cash back to LPs early.

It’s a trend that has spiked as more investors borrow against their private equity portfolios to raise cash since the slowdown in dealmaking activity has impacted their ability to exit trillions of dollars in older deals.

Avoiding these risks requires proper parameters and restrictions around NAV loans as well as LP advisory board approvals and disclosure, Parry says.

“We are not comfortable with NAV loans being used to generate liquidity to satisfy LPs,” he reiterates. “In a fund-level NAV loan, you are cross-collateralising all assets and adding a degree of risk. We are very careful about this.”

Access to the best managers

Parry oversees an annual VC and PE pacing model of around $100 million and $150 million, respectively. Strategy is focused on lower to mid-market opportunities in private equity, and early-stage venture capital. Typically, client endowments will have a 15-25 per cent allocation to private markets, depending on their own liquidity, he says.

“We want to generate significant alpha over public markets, and we want private markets to be a material part of their portfolio.”

He has no plans to add real estate or private credit. A decade ago, both private credit (distressed credit and solutions credit) and real estate were in the portfolio but dropped away due to an abundance of capital and competition at the time, making it harder to generate alpha over public markets. It also wasn’t the most effective use of endowments’ precious liquidity.

In private equity, investments target lower to mid-market opportunities where not only is there less competition; it is also possible to take a founder-led business, make it more professional and grow the EBITDA. It requires working with the right partners with sourcing acumen and the ability to win over founders; understanding when to invest – and when to stand back.

“Many years ago, we realised that in the lower mid-market PE, we have multiple ways to win beyond relying on access to cheap debt and favourable market conditions. In the small end of the PE market, even if the macro doesn’t cooperate, we can generate strong returns.”

Independent sponsors in private equity

In addition to actively investing with around 20 private equity GPs, TIFF has also partnered with independent sponsors for over a decade in its direct private equity sleeve in a win-win allocation that not only returns around 30 per cent IRR but also, over time, may convert independent sponsors into successful fund relationships.

The strategy, begun about ten years ago, was born out of the desire to generate returns deal-by-deal but also find and identify the next great PE firms early on. It has enabled TIFF to develop close partnerships, see “the good and the bad,” and go on to access their first fund as anchor investor with an information advantage not available to others.

“Approaching ten of the independent sponsors we’ve worked with have gone on to raise funds over the years. We’ve backed most of them. We typically end up partnering from independent sponsor right through to fund one, two, three and hopefully beyond.”

Finding independent sponsors who source, structure, and execute deals without managing a committed PE fund involves the typical due diligence of a first partnership with an emerging manager in an underwriting process that includes due diligence on the underlying company.

TIFF doesn’t invest directly in venture capital but actively backs around 20 “exceptional managers” who are able to find, source, identify and convince founders to let them invest alongside.

Celebrated partnerships include First Round Capital, through which TIFF has invested early on in a mix of exceptional companies that notably include Uber in 2010, supporting the business through its 2019 IPO that valued it at over $75 billion.

“Our focus is on finding managers that find founders that are solving a problem in the world and to become their earliest backer. Then you can generate outsized returns,” he says.

Accessing managers is a finely tuned, proactive sourcing process. It includes mining TIFF’s own extensive network, particularly its stella, past and present, advisory board for an endless source of introductions and warm recommendations, which means TIFF is often the first call for many venture firms. A combination of part process and part network means TIFF is present at scale in funds it is now impossible for new investors to access, says Parry.

“In venture, we have long-term, fantastic relationships with managers who we’ve backed from their first fund. Both existing and new managers also value TIFF’s mission to serve the investment needs of non-profits,” he says.

A handful of Danish pension investors are pulling capital out of the US market citing concerns about the nation’s ballooning debt and President Trump’s aggressive stance towards Greenland, but acknowledged that completely divesting from the US market is unrealistic.  

The $24 billion Danish pension fund for academics, AkademikerPension, made headlines this week after announcing that it will divest its entire $100 million portfolio in US government bonds.  

Chief investment officer Anders Schelde told Top1000funds.com the fund will invest in US dollars and short-dated agency debt as alternatives to US Treasuries, which were only used for liquidity and risk management purposes. 

Schelde said the move is not a political message but “rooted in the poor US government finances”, the ongoing tension in Greenland certainly made the decision easier. 

The biggest sovereign exposure in the fund’s $9.1 billion government and mortgage bonds portfolio is $703 million in Danish government debt.  

Meanwhile, PFA Pension, Denmark’s largest fund with $129 billion in assets, said it sold down US Treasuries in 2025 and increased currency hedging due to the US’ “unilateral” trade policies and repeated challenges from President Trump to the nation’s central bank, according to a website statement from chief strategist Tine Choi Danielsen. 

The $44 billion Sampension is similarly mulling over US exposures in its listed equities (25.7 per cent of the total portfolio) and alternatives portfolio (32 per cent). The fund doesn’t target US Treasuries in its strategic asset allocation. 

“We are currently maintaining a wait-and-see approach. However, the prevailing uncertainty is not supportive of investments in the United States,” deputy chief investment officer Jesper Nørgaard told Top1000funds.com.  

However, it might indeed be the case that a complete divestment from the US will hurt Danish funds’ performance and ultimately their pensioners more than the US government’s balance sheet.   

AkademikerPension’s Schelde said due to the US market’s strong historical performance, the fund is “unlikely” to retreat completely from its exposure to the US. Its $7.6 billion listed equities and $1.8 billion unlisted equities portfolios are both dominated by the US with an allocation of around 60 per cent. 

Danish investors owned $9.88 billion in US Treasuries as of November 2025, according to data from the Federal Reserve. which is a fraction of the $9.3 trillion US Treasury debt owned by foreign countries.  

But 26 per cent of Denmark’s $782 billion pension assets are invested in the US as of March 2025, according to figures from the Danish industry association for insurer and pension association, Forsikring & Pension. This has grown substantially from 16 per cent in 2018 and officially overtook the holdings of European assets in 2022.  

Danish pension investments in US stocks have yielded a return of $89 billion since 2018, far outpacing the $15 billion yielded from European stocks and the $38 billion from Danish stocks in the same period and highlights the risk and return impacts associated with any decisions to divest 

US Treasury Secretary Scott Bessent’s biting words at the World Economic Forum this week showed it would need much more investor action, than just the changes from the Danish pension funds, to sway the US’ geopolitical ambition.  

“Denmark’s investment in US Treasury bonds, like Denmark itself, is irrelevant,” he told reporters at a press conference at Davos on Wednesday.  

“It’s less than $100 million, they’ve been selling treasuries for years. I’m not concerned at all,” he said, referring to AkademikerPension’s announcement.  

He also dismissed the idea that European investors can weaponise the $8 trillion of US assets they hold and initiate a mass sell-off as a way to keep the US in line on Greenland. 

Nevertheless, Trump later backed down from tariff threats towards Europe in a speech delivered to the same forum, marking a de-escalation of the tension, but said he will “seek immediate negotiations” around the acquisition of Greenland from Denmark.  

How Europe can assert its independence from an increasingly aggressive US will be an ongoing theme in the coming years. 

AkademikerPension’s Schelde expects more investors to allocate financial support to Europe’s strategic independence from the US. 

“It is clear that these funds will not flow to the US or other non-European markets. Our own recent investment in a European defence fund can be seen as a good example of this,” he said. 

For more on how European funds are investing in defence in the region, see [Europe rearms, defence returns surge, asset owners rethink exposure].  

This is the fifth part in a series of six columns from WTW’s Thinking Ahead Institute exploring a new risk management framework for investment professionals, or what it calls ‘risk 2.0’. See other parts of the series here. 

In our previous thought piece, we considered how risk 1.0 hadn’t really protected us when we needed it most. Looking at the past is informative but ultimately what matters is how the risk 2.0 mindset and practice might help to address potential future risk events. With this in mind, we explore two potential future risk scenarios and describe how each would be interpreted and managed through a risk 1.0 lens and a risk 2.0 lens.

Uninsurable future THROUGH A risk 1.0 lens

The ‘uninsurable future scenario’ is driven by an escalation in insurance premiums (in particular home insurance but also commercial insurance) to levels that are unaffordable. The increasing frequency and severity of climate-related disasters – such as floods, wildfires, and storms – are treated as external shocks that disrupt insurance markets. These events lead to higher claims, which in turn drive up premiums and reinsurance costs. As insurers respond by withdrawing coverage from high-risk areas, the market adjusts through price signals and policyholder behaviour. The assumption is that if individuals and governments act rationally – by relocating, investing in mitigation, or subsidising insurance – market equilibrium can be restored.

Risk is treated as a technical problem solvable through better modelling, pricing, and regulation.

Uninsurable future THROUGH A risk 2.0 lens

With a risk 2.0 mindset, the ‘uninsurable future’ scenario is driven by a convergence of climate-induced hazards, systemic governance failures, and economic pressures that collectively push regions past a tipping point where insurance becomes unavailable, inaccessible, or unaffordable. Root causes include rising greenhouse gas emissions, sea-level rises, poor land-use planning, and socioeconomic inequality, which increase exposure and vulnerability to extreme weather events. As disasters grow more frequent and severe, traditional insurance models – based on historical data – struggle to price risk accurately. Reinsurance costs surge, data gaps persist, and insurers begin withdrawing from high-risk markets, leaving millions of properties without coverage. In Australia alone, over 520,000 homes are projected to be uninsurable by 2030[1].

The first-order impacts are immediate and severe: households face delayed recovery, rising debt, and mental health challenges. Property markets destabilise as uninsurable homes lose value and become difficult to sell or finance. This directly affects the banking sector, which relies on insured assets to secure mortgage lending. Without insurance, banks face increased credit risk, reduced collateral value, and potential defaults – especially in disaster-prone areas. These vulnerabilities can ripple through the broader financial system, undermining investor confidence and asset stability. Governments, meanwhile, are forced to act as insurers of last resort and absorb uninsured losses, straining public budgets and increasing debt burdens. The US National Flood Insurance Program, for example, is already over $20 billion in debt.

As insurance becomes inaccessible, inequality deepens: wealthier individuals and businesses relocate or self-insure, while vulnerable populations remain exposed. Feedback loops emerge as migration to cheaper, high-risk areas increases exposure, further driving uninsurability. These dynamics link to other systemic tipping points, such as ecosystem degradation and loss of space-based climate monitoring, which further erode resilience and risk modelling capabilities. The scenario underscores the urgent need for transformative approaches to climate adaptation, financial regulation, and collective risk-sharing to prevent cascading failures across social, economic, and ecological systems.

Food crisis through a risk 1.0 lens

Scanning historical data suggests local food crises are possible, but tend to be in low-income countries and to follow periods of drought. They are generally addressed by humanitarian relief efforts and have no discernible impact on asset prices. Food problems have been seen in high-income countries during times of war (rationing) or pandemic (temporary unavailability during COVID).

Looking forward, it would be reasonable to assign a higher probability to a disappointing harvest in a major breadbasket region of the world (e.g., climate change-induced drought, or war continuing in Ukraine). However, expectations would suggest high income countries would be able to afford to import the food they require at the higher prices. There could be a temporary negative impact on asset prices from a temporary spike in inflation (driven by food prices), but significant or lasting economic damage is highly unlikely. We therefore assign a low probability to this scenario, and a low to moderate adverse impact on asset prices.

Food crisis through a risk 2.0 lens

The global food system employs complex global supply chains, and “there are unprecedented levels of market concentration throughout global agrifood systems”[5]. A few companies control seeds, chemicals, pharmaceuticals, machinery, fertilisers, livestock genetics, food processing and commodity trading, and have potentially gained “market power”[6]. We would describe it as highly efficient but with very low resilience. It is highly dependent on the continued availability of fresh water, and continued deforestation (which is likely to disrupt the water cycle, let alone over-drawing from aquifers). Supply assumes, and is dependent on, the independence of weather across the world’s breadbasket regions.

Climate change challenges this assumption and we suggest that correlated poor harvests are now possible, if not probable just yet. Climate change also threatens to tip the Amazon from forest to savannah, which would remove a major rainfall source for a large part of South America, and likely interrupt rainfall patterns globally. In turn, this could strand existing agricultural infrastructure assets. The system is also exposed to any disruption in global shipping (Suez and Panama canal blockages/droughts, and war). Unlike the GFC, governments will not be able to bail out the food system by issuing “future food”. There is likely to be widespread social unrest, and possible direct action against the agri corporates and possibly the financial firms that fund them.

Given the lack of resilience in the food system, and the lack of action to address climate change, we are forced to conclude that – in the absence of new action – the probability of a food crisis will rise through time, until it becomes a near-certainty. At that point, the risk to financial asset values is very high.

 “Safety is something that happens between your ears, not something you hold in your hands.”

– Jeff Cooper

We may be guilty of drawing boundaries around specific sectors in this piece, but the ultimate purpose is to show that a risk 2.0 lens allows those boundaries to dissolve as we recognise our hyper-connected global system.

The first step in answering “can risk 2.0 save us from crises yet to come?” is realising that while some crises carry a high probability, our awareness and preparedness can be radically improved.

There is no greater safety with risk 2.0, only better readiness.

Andrea Caloisi is a researcher at the Thinking Ahead Institute at WTW.

[1] UNU Institute for Environment and Human Security. 2023. Uninsurable future

[2] Total GDP losses after taking feedback loops through the financial and social system into account would be expected to be significantly larger (ie multiples of the estimate of direct losses)

[3] European Insurance and Occupational Pensions Authority. 2023. Policy options to reduce the climate insurance protection gap

[4] Aggarwal et al. 2023. Sigma – Restoring resilience: the need to reload shock-absorbing capacity

[5] IPES-Food (International Panel of Experts on Sustainable Food Systems). 2017. Too big to feed: Exploring the impacts of mega-mergers, concentration, concentration of power in the agri-food sector.

[6] FAO. 2022. The future of food and agriculture – Drivers and triggers for transformation. The Future of Food and Agriculture, no. 3. Rome. https://doi.org/10.4060/cc0959en

The £35 billion ($47 billion) Railpen will ramp up its infrastructure allocation and explore a foray into commodities, as the fund bedded down the protection against inflation as the most important portfolio objective in its latest strategic asset allocation review.

It was a priority driven by Railpen’s stakeholders who want the fund to better mitigate inflation risks without compromising real returns, according to director of total portfolio investments John Greaves.

“On a trailing three and five-year basis, inflation has had a really big impact on our real returns, because we only partially hedge inflation and it’s quite hard to find assets that are resilient to inflation shocks,” Greaves tells Top1000funds.com in an interview.

“We spoke to the board about their growth-matching mix, but they are pretty focused on the long-term real return generation and weren’t willing to take some return off the table to hedge inflation.

“So it was ultimately down to the growth assets to be more resilient to such an [inflationary] environment.”

In infrastructure, this means Railpen is investing more in core-plus and value-add assets to complement its existing core exposures which generate secure income. The fund is looking to boost the infrastructure portfolio from the current £1 billion to £2-3 billion in the next five years.

The fund will look to take on some development risks and grow smaller, quality infrastructure assets into the mid-market space where the fund will seek liquidity, typically within a 5-10 year hold period.

It has a strong home bias – aiming for around 75 per cent of its infrastructure portfolio in UK direct investments – and has significant exposure to assets with an energy transition theme. It also has pan-European partners for co-investment opportunities but doesn’t have exposures to the US or emerging markets infrastructure.

“It’s a nice feature of infrastructure that often there’s plenty of opportunities to develop assets that we’d see would be resilient to energy transition risk,” he says.

But the fund is hesitant about infrastructure debt. Despite it being a macroeconomically resilient asset class and throwing out attractive yields in a stable regulatory and policy setting, Greaves says that is a big ask in today’s world.

“We’re a bit mindful that any asset that requires a stable regulatory, political environment should probably be carrying a higher risk premium right now, because we just don’t think that’s the environment we’re in,” he says.

“You often get quite a small pickup [in infrastructure debt] for actually quite a lot of risk. If a government changes the rules of the game, the nature of a subsidy agreement for example, or other changes that underpin the value of the asset, then often it could be quite a big risk event.”

The fact that infrastructure debt is an area heavily bid by insurers also means the return is quite tight, Greaves explains.

“We’ve tended to invest in areas where there’s less cash flow certainty and less of an insurer bid,” he says.

“Right now it still feels like an environment where you want probably more of a barbell [approach] – buy inflation linked bonds and then invest up the risk spectrum in more of the growth infrastructure space.”

Commodities’ time to shine

Railpen recently received the nod from its investment committee to explore potential investments in the commodities universe. Greaves did not offer an expected allocation but it’s likely to be a small, controlled bet to begin with.

“We’re not going to put half the portfolio in it. It’s a complementary exposure that in certain environments hopefully would just give us a few per cent extra of return,” he says.

Gold, which has increased more than 60 per cent in the year to date, is likely to be a central part of the allocation. It’s a hedge to the fund’s underlying thesis that fiat currencies are becoming less reliable due to uncertain policies from global central banks.

“Most institutional portfolios are 100 per cent exposed to fiat currency. In our case, mostly British pound, but [others may have] dollars, euro and yen. Gold can help balance out the currency mix essentially,” he says.

“Do you want all of your exposure to be in paper money where central banks and policymakers have demonstrated in recent decades that maintaining purchasing power is not front of mind?”

Greaves clarifies the fund does not see gold as a long-term return driver but something to make the portfolio more resilient in environments where other assets may be struggling.

“Ultimately it has to outperform cash. It’s funded by cash and not funded by growth assets,” he says.

“Do we think a broad basket of commodities, and specifically gold, can outperform cash over the long run? Probably.

“Commodities have delivered about 2 to 3 per cent historically over cash and there’s no evidence that won’t continue. But equally, there’s not a clear economic rationale why it should outperform cash, really. So again, we have some very prudent assumptions there.”

The fund is still exploring the right implementation model, noting that while it has an internal trading capacity, commodities is an area where some market participants do have an information advantage, Greaves says.

“We’re comfortable running certain strategies internally. But we have some futures-based strategies which are implemented with external partners, just because they’re high-turnover type of strategies or where the contracts aren’t as liquid.”

Looking ahead, Greaves says Railpen is looking to build more portfolio resilience, which it defines as the likelihood of delivering its investment objectives over the rolling medium-to-long term.

“That’s the big thing this year, to have a better handle on what we can do over the medium term and to try and deliver on our objective in a wider range of outcomes essentially. We’re probably still at the start of that journey,” he says.

“It’s going to be very important in the coming decades to think about all these different possible scenarios. We think markets and the economy are going to be potentially pretty volatile.”

Railpen has 33 per cent allocated to equities, 8 per cent to fixed interest securities, 13 per cent to index-linked securities, 30 per cent to pooled vehicles and 7 per cent to UK property as at the end of 2024.

Pension funds in The Netherlands have kicked off 2026 by switching to a new defined contribution system, swapping the country’s defined benefit system and tying pay-outs to contributions and market returns instead. 

Pension funds with assets accounting for almost a third of the country’s €1.6 trillion ($1.87 trillion)  pension system have made the change. Another $1 trillion is planned to transition next year in time for the January 2028 deadline, in a complex process that has been 10  years in the making and involves navigating regulatory hurdles, IT issues and administrative challenges. 

“The launch of the new scheme is good news for all participants and pensioners. We now have a pension that is more future-proof; can grow more easily in good times, and is still well-protected in bad times,” states Pensioenfonds Zorg en Welzijn (PFZW), the €250 billion Dutch healthcare fund, one of the funds to transfer to the new system. 

Meanwhile, ABP, Europe’s largest pension fund with over €500 billion under management and accounting for around a third of the sector’s total assets under management, says it will transition to the new system in January 2027. 

The reforms will allow Europe’s largest pension funds to buy riskier assets and move away from strategies that have favoured long-term interest-rate hedging and matching assets very closely to liabilities. 

Many Dutch funds have run dynamic asset and liability management strategies where a matching and return portfolio, and an interest-rate hedging strategy, all moved in line with funding ratios. This investment approach, which has been encouraged by strict regulation steering funds to focus on short-term stability and guarantees rather than tilting towards risk-taking and long-term returns, has also thrived in a low-interest-rate world. 

Impact on the bond market

But Europe’s largest pension sector is expected to push into riskier assets and buy less long-dated government bonds just as European governments face record funding needs. 

Government bonds make up a significant portion of Dutch pension funds’ balance sheet. Research from ING Netherlands estimates fixed income accounts for €729 billion of the country’s pension sector; equities account for €439 billion, real estate €154 billion, private equity €95 billion, infrastructure €60 billion and ‘other’ investments €122 billion. 

Many investors welcome the shift from “overdone hedging strategies” that have come at the expense of returns. 

But any push into equities and riskier assets will depend on the risk preference of scheme members. Moreover, only pension funds with young beneficiaries are expected to change their asset mix and beef up their allocation to equities and alternatives and reduce their exposure to fixed income. 

For example, Imke Hollander, senior advisor to the investment committee at PWRI, the €10 billion pension fund for people with disabilities, said the fund is on a de-risking trajectory because it doesn’t have many young participants joining despite it still being an open fund. Moreover, she said the pension fund’s risk appetite is unlikely to extend beyond an existing 50 per cent allocation to equity and real estate anyway. 

In conversation with Top1000funds.com last November, outgoing chief executive officer Ronald Wuijster at APG Asset Management, which manages ABP’s giant portfolio, argued that structural changes are also essential to enable Europe’s pension funds to successfully take more risk in a continent where the capital markets offer thin pickings. 

He listed roadblocks like Europe’s fragmented insolvency legislation, which differs between countries. The absence of a capital markets union also makes it hard for fast-growing companies to access the finance they need to grow and fire up a competitive European economy. European member states’ deeply-held national differences also thwart the prospect of a capital markets union alongside a deep psychology of risk aversion. 

Under the Dutch reforms, pension funds will choose between two different types of DC schemes, either a “solidarity contract” where the fund decides on the investment mix or a “flexible contract” where the member can choose their own investment mix. 

It means the new regulation will trigger a sharp uptick in compulsory communication with beneficiaries, as well as time-consuming board approvals for every change to ensure different stakeholders, including unions and employers, are on board.