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ABP boosts funding by 7 percentage points, but coverage doubts remain

NETHERLANDS - The €274bn civil service scheme ABP saw its coverage ratio increase by 7 percentage points to 97% during the third quarter due in part to a quarterly return of 4.8%.

The result lifts the scheme’s year-to-date return to 11.1%, including a 0.4% return from its interest and currency hedges and liquid assets.

In its quarterly report, ABP attributed the strong improvement in its coverage ratio in part to the new discount rate - the ultimate forward rate, which replaced the three-month average of the forward curve.

The pension fund also cited a 0.1 percentage point increase in long-term interest rates.

However, Henk Brouwer, the scheme’s chairman, said he was dissatisfied with the funding increase, pointing out that the new discount rate had added just 2.7 percentage points to the ratio.

“The funding is still insufficient, and an increase of interest rates and returns on investments is required for a proper recovery this year,” he said.

“Unfortunately, the already announced rights cut of 0.5% in April 2013, and a possible additional discount in 2014, have come closer, so my worries haven’t disappeared at all.”

ABP’s investments in government bonds, inflation-linked bonds and credits returned 3.1%, 5.2% and 3%, respectively, during the third quarter, whereas equity holdings in both developed and emerging countries delivered 6.2%.

Property, private equity, commodities and infrastructure generated profits of 2.3%, 2%, 9.8% and 3.2%, respectively.

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