NETHERLANDS - SBZ, the €2.3bn pension fund for health insurance employees, has completed the final stage of its outsourcing to Russell Investments and moved its indirect real estate holding to the asset manager, following a sale of its direct domestic holdings.

Peter van Gemst, director of finance and investments at Stichting Bedrijfstakpensioenfonds Zorgverzekeraars (SBZ), said the pension fund has completed the outsourcing of investment management which began in 2007 after the board of directors decided to also employ Russell to manage a 6%, or €135m, allocation to indirect international real estate.

Russell took on the management of most of the fund's assets in 2007 but the pension fund executives asked Russell and two other firms at the end of last year to present proposals for the handling of the allocation, and how it might be transitioned from direct to indirect property.

Despite the difficult market conditions for real estate and concerns about whether the fund could gain a good price, the executives went ahead with plans to sell the direct holdings earlier this year, according to van Gemst, as it was felt the Dutch market still offered reasonable pricing and opportunities to buyers in comparison to the real estate markets elsewhere in Europe, and a good sale price in return.

"The board opted for total outsourcing on the investment plan so we continued with a study on how to manage a real estate portfolio and what it should look like in the future. It was a difficult decision because of the markets. But we felt the Dutch [real estate] markets were still better than other European real estate markets. Russell's proposal came out the best because of the quality of their proposal and it allowed us to bring all of the investments under the Russell model," he added.

SBZ's 7% holding in real estate had previously been split largely into direct Dutch domestic properties, and a small sum of non-listed property funds, but the strategy has now transitioned to deliver a wider diversification of holdings and geographies.

Van Gemst said the changed asset allocation strategy held up reasonably well in the recent financial turmoil - giving the scheme a 116% cover ratio at present - although like most other pension schemes the ongoing volatility still gives some cause for concern.

The strategic allocation has been split to diversify holdings but generated long-term returns for its 17,000 active members, 20,000 deferred members and 6,000 pensioners, as 80% of holdings are in liquid assets.

The asset allocation is split as:

Fixed income 49% Equities 31% Real estate 7% Hedge funds 4% Commodities 3% Private equity 3% Global tactical asset allocation (GTAA ) 3%, Along with a hedge on currency and interest rates.

Similarly, the study found the optimum real estate portfolio should be 25% Dutch,
50% European,15% US unlisted property funds and 10% listed global property funds, while the sectors should be split as 40% residential property, 20% retail, 30% offices and 10% logistics, to deliver a minimum of 70% in core funds and up to 30% in value- added and opportunistic funds.