Blue Sky’s Mark Burbach Builds an ‘All-Weather Portfolio’

Since taking the reins as chief investment officer in 2009, Mark Burbach has run the Amstelveen, Netherlands–based fund manager like a laboratory, with the daring and calculation of a good scientist. Blue Sky Group, which started out managing airline KLM’s pension fund, now oversees $19.3 billion for six Dutch pensions and one U.K. plan, with pooled vehicles doing everything from asset-liability management to aiming for real return targets. “It looks like we have an all-weather portfolio, but it certainly goes into more-innovative areas,” says Burbach, 43.

With some 55 percent of Blue Sky’s assets in fixed income, finding yield requires creativity these days. In 2014, Dutch insurer Aegon and Achmea Investment Management made Burbach an offer he couldn’t refuse: funds containing Dutch mortgages offering spreads of 180 to 250 basis points over swap rates, an opportunity created by bank deleveraging. Burbach allocated 4 percent of assets to the mortgage funds. “A mortgage should have a bondlike structure, but since we have to mark to market with nominal rates and nominal rates have decreased a lot, we see huge gains while we know there is a constant rental income every month,” he explains.

In 2012, Blue Sky ventured into private equity, which now accounts for up to 10 percent of the equity allocation for most clients. The firm invested more than $100 million with Hong Kong private equity firm Asia Alternatives Management, which was an early investor in Chinese smartphone maker Xiaomi and took a small pre-IPO position in e-commerce giant Alibaba Group Holding. “Those were little successes, but they help,” says Burbach. Blue Sky keeps about 35 percent of its total portfolio in equities, with smart-beta approaches like low-volatility indexes making up a fifth of the equity allocation. “They actually enhance the risk profile both in an ALM context and in an absolute-return context,” Burbach says. The final 10 percent of total assets are tied up in real estate. Under Burbach’s leadership Blue Sky has adopted a core-satellite model in which the core real estate portfolio aims to generate stable cash flow from rental income while the remainder seeks private equity–like returns.

The €7.6 billion Pensioenfonds KLM, which uses a blended approach representative of Blue Sky’s aggregate portfolio, had annualized returns of 7.2 percent from 2011 through 2015. Returns like that let Burbach’s 50-strong asset management team continue to innovate. “We’re allowed to deviate from the beaten path as long as we prove it helps make their goals,” he says.

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