NETHERLANDS - The funding ratio of ABP, the largest Dutch pension fund for civil servants, is hovering in the region of 95% to 100%, Harry Borghouts, interim president, said yesterday at the presentation of ABP's annual report.

The scheme for civil servants realised a 0.9% positive return on its investments in the first four months of this year and saw its assets grow from €172 to €175bn. At the same time, its total liabilities dropped by €2bn to €191bn as a result of rising interest rates, and this in turn caused the funding ratio to rise to 91% by the end of April.

These positive developments have continued over the last two weeks and lifted the cover ratio further to almost 100%.

"There are signs of a positive trend", said Roderick Munsters, chief investment officer of APG Asset - the wholly-owned asset manager of ABP - who added " the free fall of 2008 seems to have ended", though he noted "one swallow does not a summer make."

Current developments in the financial markets appear positive for ABP, Munsters suggested, as not only have equities performed much better and realised a positive return of 2.8% in the first four months of 2009, but bond returns have also stayed in positive territory and generated a return of 1.9%.
The 30-year swap curve moved up to 3.97%, climbing 13% from its lowest point on 9 March.

"The flight to quality seems to have ended and long-term interest rates are going up again," said Munsters.

ABP only partly hedged its interest rate risk as it aims to profit from rising interest rates. And aside from this, ABP has benefited from a rising euro/dollar exchange rate and the climbing oil price.

However, other asset categories have not performed as well, as real estate returned -6.6% in the first four months of this year, while private equity investments have lost 3.6%, infrastructure has generated a negative return of 4.1% and commodities have fallen 7.6%.

Harry Borghouts indicated that contributions would rise by 1% from 1 July but the decision to increase premiums by another 2% from 1 January 2010 would be evaluated in the course of the year "depending on the developments and the financial position of the fund".

The board also said ABP shared increasing concerns "about rising inflation over the coming years". The scheme's recovery plan was calculated based on average inflation of 3%.
Roderick Munsters said the process of de-risking, which includes reducing ABP"s equity allocation by 3%, had been completed.

"Apart from buying relatively less equity, we have lifted our interest rate sensitivity [of the bond portfolio]and have started to increase our exposure to alternatives, mainly through hedge funds," he said.

The fund has yet to receive any reaction from the Dutch financial regulator, De Nederlandsche Bank, on the recovery plan it submitted at the end of March.