Hans de Ruiter: Private markets even more interesting under the Wtp

November 17, 2025

_{This interview was originally written in Dutch. This is an English translation.}

Private markets are playing an increasingly important role in pension fund portfolios. Not only do they offer extra returns, they can also cushion the shocks of stock market volatility, which is becoming particularly important under the new pension system. However, good manager selection and governance structure are key to success, says Hans de Ruiter, CIO at Pensioenfonds TNO.

By Harry Geels

What role do private markets play in institutional portfolios?

'In most cases, investments in private markets end up in return portfolios, where they serve a variety of purposes. Firstly, they generate additional returns compared to investments in public markets, for example through the illiquidity and complexity premiums. In addition, private markets contribute to the diversification of the portfolio. In general, they have a limited correlation with public markets, especially over a shorter investment horizon.

If I focus the question on pension funds, there is a little more to say about this because of the transition to the new pension system. Under the Wtp, both assets and expected pension are relevant. The expected pension already played an important role in the old pension system, and assets were particularly important in the context of the coverage ratio. Under the Wtp, we will invest according to a life-cycle approach, whereby the investment policy is tailored to the age of the participants. For young people, the risk profile will be higher than is currently the case, and for older people it will be lower. In addition, good communication is required about the development of both the expected pension and the assets. Participants will become much more aware of the development of their assets. It is to be expected that older active participants will focus on their expected pension, while younger active participants will pay more attention to their assets. After all, retirement is still a long way off. The fact that young workers will have a riskier portfolio in the new system, combined with the fact that they are likely to monitor their asset development more frequently, presents a challenge for pension funds. After all, a riskier portfolio means more volatile asset development. This places higher demands on communication from pension funds.

However, it is also possible to mitigate the higher volatility by adding private markets. These investments are characterised by lower volatility, while also offering the prospect of higher expected returns. In short, by adding them to the portfolio, we contribute to a ‘smooth ride to a better long-term outcome’. This also applies to older active members, of course, but given the expected focus of younger active members on their assets, mitigating volatility is of greater importance to them. We should not underestimate the importance of a “smooth ride”. I think that under the Wtp, the journey will become more important than before, and not just the (expected) outcome. Since pensions are also an emotional product, it is important that we make the journey as pleasant as possible by ensuring that we arrive at our destination with as little turbulence as possible.'

Private markets in the pension portfolio contribute to a ‘smooth ride to a better long-term outcome’ for participants.

On paper, the expected returns are relatively high and volatility is relatively low. So is it a ‘free lunch’? What are the hidden risks

'It is worth taking a closer look at the low volatility. For private markets, this is often much lower than for investments in public markets. This is partly due to the method of valuation. The absence of daily mark-to-market valuation creates a certain sluggishness in price formation, which leads to relatively low volatility. However, that is only one side of the coin. The other side is that volatility in public markets may be too high. After all, volatility there is a function of fundamentals and investor sentiment.

Ideally, you would want volatility to reflect the risk of the fundamentals. However, since Robert Shiller's studies in the 1980s, and the many studies that have appeared since then, we know that much of the volatility in public markets is attributable to investor sentiment. From this perspective, volatility in private markets may be a better reflection of fundamentals than that in public markets. Personally, as an investor, I like the fact that adding investments in private markets allows me to reduce the emotional risk in my portfolio somewhat. This does not alter the fact that private market investments involve additional risks. Their illiquid nature means that you are less agile as an investor. The reduced ability to make adjustments is an additional risk. I do believe, however, that this risk can be mitigated through good portfolio structuring.

Another possible risk is reduced transparency. This is inherent to private markets. An extension of this is another risk: data availability. When it comes to identifying ESG risks, we see that the availability of ESG data is limited in various areas within the private markets. Then there is the valuation risk. Because valuations are often based on the ‘mark-to-model’ principle, there is always greater uncertainty about the accuracy of the valuation.

Finally, there is the liquidity risk associated with capital calls. We believe this risk is limited. We always ask our asset managers in private equity and private debt to estimate upcoming capital calls and distributions. This allows us to adjust our liquidity planning accordingly. In addition, we always have sufficient buffers in place to absorb any deviations from these estimates.'

How important is the selection of good managers and what should we look for when selecting them?

'Selecting good managers is one of the keys to success when investing in private markets. In contrast to what we see in public markets, the difference between the first quartile of managers and the fourth is enormous. The differences are particularly large among private equity and venture capital managers. This means that we need to have our risk management in order from the outset. When selecting managers, we first look at the stability and experience of the team and the organisation. Of course, we also look at the strategy and the resources available to implement it. We also consider the track record to be important. Many parties have attractive strategies on paper, but ultimately it is the execution that counts. The track record shows whether a manager is capable of successfully implementing the strategy. In addition, the track record tells us whether the strategy is in line with the manager's style.'

The volatility in private markets may be a better reflection of the fundamentals than that in public markets.

How have you embedded private markets in TNO's portfolio?

'In order to work effectively with private markets, we have a structure within the TNO Pension Fund in which the equity, fixed-income and real estate clusters consist of combinations of liquid public markets and illiquid private markets. For example, within the equity cluster, we have the categories of listed equities and private equity. In the fixed income cluster, we distinguish between high yield/leveraged loans within the liquid segment and direct lending within the illiquid private markets segment.

The liquid investments form the flexible shell within the clusters and enable us to manage risks tightly at cluster level. If, for example, private equity is allocated a slightly higher weighting than the strategic weighting because that category is performing better than public equities, we can temporarily reduce the public equity allocation. Each cluster therefore functions as a communicating vessel. If there is then a distribution from private equity, it can be returned to public equities.

In this way, as a pension fund, we can easily manage with a relatively high allocation to private markets for our industry. For example, we have a strategic weighting of 8% to private equity, 8% to mortgages, 7% to private debt and 3% to non-listed real estate. That is a total of around 26%. Private loans are now attractive due to the withdrawal of bank financing, particularly for small and medium-sized enterprises, and the historically low spread of credits and high yield at present. In general, there is still sufficient risk compensation for private loans.

With regard to the management of our investments in private markets, we at TNO Pension Fund have set up a fairly unique structure. We have entered into strategic partnerships with Wilshire and Kempen for both private equity and real estate. The first partnership was with Wilshire in 2015. Our conclusion at the time was that our team did not have the resources to set up and manage a private equity programme ourselves. We are a medium-sized pension fund with a team of four people who oversee the entire portfolio. Moreover, we do not work with a fiduciary. We do work closely with BlackRock, but they act as strategic advisor and manager of the LDI portfolio and currency overlay. In order to ensure adequate governance – another important success factor – we decided at the time to select a strategic partner to support us in strategy formulation, fund selection and monitoring. That role is now fulfilled by Wilshire.

In addition, we have set up a Private Equity Committee. This consists of two external members with backgrounds as LP and GP, respectively, and someone from the investment advisory committee. This committee assesses all investment proposals. We have a similar structure for real estate, and we are still considering this for private debt. This approach enables us, as a medium-sized pension fund, to operate responsibly in the private markets and also allows us to respond quickly to developments.'