There is no noticeable difference in the level of returns achieved by Dutch pension funds following an active investment strategy and those investing passively, according to research by De Nederlandsche Bank (DNB).

The research found that bigger and more specialised pension funds use performance fees more often than smaller and less specialised funds. Moreover, they pay a smaller performance fee for the same performance of an asset manager. This is particularly the case for alternative asset classes.

A possible explanation is that these pension funds have a better negotiating position in the market due to their economies of scale or expertise compared to smaller and less specialised funds.

Performance fees are usually part of active investment strategies and alternative asset classes such as hedge funds and private equity. In 2015 Dutch pension funds paid a total of €1.5bn in performance fees. These are financed by the extra returns these investments yield.

The height of performance fees differs per asset class. Pension funds usually pay high performance fees for private equity and hedge funds. During 2012-15 the annual average performance fee for private equity was 0.69 per cent of the invested amount in that asset class, and 0.87 per cent for hedge funds. The average performance fee for traditional asset classes was only several hundreds of a percent.

During this four-year period, the Dutch pension funds yielded an average return of 9.72 per cent. The net return, which is the total return minus all investment costs (such as performance fees) and the return on a benchmark, was highest for private equity, at 1.40 per cent, while the net return of hedge funds was only 0.12 per cent.

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