9 March 2022

The herd behaviour of pension funds

There are some 200 pension funds in the Netherlands, all involved in investing the future pensions of millions of employees. The pension sector is supervised by De Nederlandsche Bank (DNB), which sponsors PhD projects at Maastricht University to gain insight into both the performance and the investment strategies of these funds. Late last year Matteo Bonetti, born and raised in Italy, successfully defended his PhD dissertation on factors that influence investment strategy. Here he reflects on the project with his supervisors Rob Bauer and Dirk Broeders.

Bonetti, Bauer, Broeders

Rob Bauer, Matteo Bonnetti and Dirk Broeders

Pension funds are in the spotlight like never before. Increasingly, they find themselves under fire for investing in the arms industry or other ethically dubious sectors, such as the mining and textile industries, where employers often play fast and loose with working conditions. Some have changed course under pressure from stakeholders and public opinion; take ABP, the largest fund in the Netherlands, which recently withdrew from the fossil energy industry. Add to this the ongoing debates on minimum funding requirements, lagging indexation, premium increases and concerns about the ever-rising average age of participants, and it is clear why the question of how to manage the hundreds of billions of euros in the pension coffers keeps certain people awake at night.

Complete picture

Matteo Bonetti is one of them. In early 2016, he spotted an ad for a PhD project at UM focused on the Dutch pension system. After just two interviews, he jumped at the chance to trade Italy for Maastricht. “It was exactly what I wanted,” he says from the new UM building in the former Tapijn barracks. “I became interested in pension systems during my bachelor’s and master’s degrees, partly because they have such a major social impact. Pensions determine the purchasing power of a growing part of the population, especially in an ageing Europe. To safeguard that income and avoid having a negative impact on the economy, they need to be invested well. That’s why it’s important to analyse how these funds are performing and how they arrive at their decisions. The Netherlands is a particularly interesting case because all pension funds are subject to mandatory supervision by DNB. They have to provide all sorts of detailed data, which gives you a complete picture. It’s a gold mine for researchers.”

Pension funds exhibit a kind of herd behaviour. Because the smaller funds tend to make the same decisions as the larger ones, these ‘followers’ perform less well. And the boards are typically staffed with relatively old directors with little diversity and few women. When you have an old board combined with young participants, it can result in an overly conservative investment strategy.
Matteo Bonnetti

New insights

It’s a unique situation, Dirk Broeders confirms. The UM professor also works as a senior risk manager at DNB. “Monitoring and optimising investment policies means sifting through mountains of data. The data are anonymised and protected, and to analyse it we collaborate with the UM School of Business and Economics. Although we finance the PhD projects, the assignment is not set in stone. It’s up to the PhD candidates to contribute ideas and look for new angles.”

Educational journey

That was a breeze for Bonetti, says Rob Bauer, the second UM professor and supervisor. “Matteo came up with the ideas and plans, especially in the first year—more than we could handle, actually. Ultimately, the three of us decided the research should focus on the complex governance structure of pension funds and how this influences investment decisions. After that it was three-plus years of hard work. Matteo waded through masses of data. Rarely have I supervised a PhD student with so much patience and perseverance. He analysed all pension funds and drew some surprising conclusions. Of course there were discussions along the way, but it was all part of an enjoyable, educational journey.”

Herd behaviour

Bonetti found that the age of the directors, external advisers and the policies of other pension funds influence their investment strategy. “Pension funds exhibit a kind of herd behaviour,” he says. “Because the smaller funds tend to make the same decisions as the larger ones, these ‘followers’ perform less well. Funds that use the same advisers and administrators seem to have comparable investments, even if the pension funds are different. And the boards are typically staffed with relatively old directors with little diversity and few women. When you have an old board combined with young participants, it can result in an overly conservative investment strategy.”


Herd behaviour can be risky, Broeders acknowledges. “If something goes wrong, it’s more likely to affect many funds at once, which can have a destabilising effect.” As for what the trio will do with Bonetti’s conclusions: “We want to translate academic research into social relevance. The lack of diversity, for example, is an issue we often raise with pension funds.”

Rob Bauer studied economics at UM and financial management at TIAS Business School before obtaining his PhD in Maastricht in 1997. The UM professor is also director of the International Centre for Pension Management in Toronto and has his own consultancy firm. Along with Mieke Olaerts, he holds the Peter Elverding Chair at UM, focused on sustainability.

Matteo Bonetti obtained his bachelor’s and master’s degrees at the University of Turin. After an Erasmus exchange year at Umeå University in Sweden, he worked in Italy and Belgium before starting his PhD in Maastricht in 2016. He now works as a risk manager at DNB in Amsterdam.

Dirk Broeders studied at Tilburg University and worked for two commercial banks before joining DNB in 2002, where he is now a senior risk manager. He previously served as head of the International Organisation of Pension Supervisors. He obtained his PhD at Tilburg in 2009 and is, alongside his work at DNB, professor of Finance at UM.

By: Jos Cortenraad (text), Paul van der Veer (photography)