* Quarterly reports show commodities exposure unchanged
* PFZW has 9.3 bln euros in commodity markets investment
* ABP increased investment in land/mining - asset manager
By Ivana Sekularac
AMSTERDAM, Feb 4 The two biggest pension funds in the Netherlands plan to maintain investment in commodities even after their latest quarterly reports showed commodities as their worst performing asset class and a big U.S. fund halved its exposure.
Dutch funds ABP, for state employees, and Pensioenfonds Zorg en Welzijn PFZW for health and medical care workers, along with Californian state pension fund CalPERS, were among a handful of big pension funds that invested in commodity derivatives as an alternative to stocks and bonds in the middle of last decade.
CalPERS slashed its investment in commodity derivatives by more than half late last year from $3.45 billion to $1.56 billion on Oct. 31.
ABP and PFZW have kept their exposure to commodity derivatives unchanged, at 3.6 percent and 7 percent of their total portfolios, respectively.
The two funds have total commodities investments of more than 19 billion euros, although ABP's includes investment in resource company stocks as well as commodities markets.
"The purpose of the commodities in our portfolio is diversification and inflation-hedging," said Jan Willem van Oostveen, PFZW's manager for investment and financial policy.
"An investment in commodities is lowering the total amount of portfolio risk. If you take them out of the portfolio, the total risk is going to increase."
Quarterly reports published by ABP, the world's third-largest state pension fund, and PFZW, the second-largest pension fund in the Netherlands, showed commodities were their worst-performing asset in the last three months of 2012.
PFZW's commodities investments lost 0.8 percent overall in 2012, falling 1.6 percent in the last quarter, its latest quarterly report showed.
PFZW allocated 9.315 billion euros of its total assets of 129.6 billion to commodities. Of that exposure, 80 percent is in petroleum markets, 10 percent in industrial metals, 5 percent in agriculture and 5 percent in livestock.
ABP said 3.6 percent of its total assets of 281 billion euros are held in commodities, worth about 10 billion euros, shared between commodity market investment and resource company equities. It reported a loss of 4.2 percent for commodities in the last quarter of 2012 but said that overall in 2012 its commodity investments rose 4.4 percent, following a rise of 6.1 percent in 2011.
It declined to give a breakdown of its commodities investment.
APG, the asset manager of ABP, said the fund had increased investment in natural resources company assets, which are part of the commodities portfolio, to counter effects of volatility in the market.
"The combination of liquid commodities and natural resources should lead to a better risk/return relationship. This, for example, via diversification across sectors - adding timberland as a sector - and within sectors - for example adding iron ore," Olav Houben, head of commodities at APG, said.
The fund invests in production companies in the mining, oil and gas sectors that "hedge their commodity sensitivity as little as possible", he said.
"We prefer investments via unlisted structures to secure the exposure to commodity price development."
PFZW's asset manager, PGGM, said it changed the way it gets exposure to commodity assets to secure flexibility.
"We have changed our investment approach over the years from one of being 100 percent total return swap-based to an almost 100 percent futures-based portfolio," PGGM said in an email. (editing by Jane Baird, Richard Mably)