Selling pension funds and the billion-dollar claim on Philips

BNR Nieuwsradio
Erasmus School of Economics

In a recent BNR Nieuwsradio broadcast, Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics, spoke with analyst Nico Inberg about the news that pension funds are selling investments for a record of €88 billion. They also address the billion-dollar claim currently hanging over Philips' head.

In the broadcast, Pieterse-Bloem describes that Philips allegedly misinformed investors about the quality of a certain product. Investors therefore paid too much money for shares at the time. Besides investors, the Vereniging van Effectenbezitters (Association of Stockholders), the interest group for investors, is also investigating Philips. However, the professor says this is more of a legal dispute.

The episode also deals with pension funds selling €88 billion worth of investments. This has two causes, according to Pieterse-Bloem: portfolio rebalancing and failing interest rate derivatives. How the latter cause fits together, the professor explains strikingly: pension funds have liabilities to pay out, which they would like to match with bonds. However, you cannot buy bonds with such long maturities. Therefore, pension funds buy interest rate derivatives to boost that maturity. As interest rates rise, benefits become relatively expensive and so pension funds are forced to have more 'margin money' available. That explains the large amount of investments sold, Pieterse-Bloem said.

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You can listen to the full episode from BNR Nieuwsradio, 13 September 2022, here

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