ABP, the €373bn pension fund for Dutch civil servants, has credited its active investment policy for the 0.45-percentage-point outperformance of its investment portfolio last year.
The pension fund reported a 2014 net return of 14.5% – with 3.9 percentage points from its interest hedge – and said nearly all asset classes contributed positively.
However, the scheme’s official ‘policy funding’ – which dropped to 102.6% at the end of March due to falling interest rates – was too low for the scheme to grant inflation compensation.
As a result, indexation in arrears increased to almost 10%, according to ABP, which added that the options for cost-of-living-allowance would be “very limited” in the coming years.
The pension fund’s 10% property allocation, which returned 26.5%, was the best performing investment category.
Tactical asset holdings, consisting of listed property companies and funds, returned 31.1%.
The pension fund cited the rise of the US dollar relative to the euro, creating “good conditions to list or sell companies”, in part for the 23.3% return on its 5% private equity portfolio.
Equity returned 17.1%, with US equities producing the best results.
The scheme’s fixed income holdings returned 13.9%, with government bonds returning 13.4%, outperforming their benchmark by 0.3 percentage points.
ABP’s stake in hedge funds (5%) and infrastructure (2%) generated 17% each last year.
The pension fund said the best-performing hedge funds strategies were Relative Value Arbitrage, Equity Driven and Corporate Distressed.
Infrastructure benefited from the low-interest environment and increasing demand, with co-investments in ports and pipelines performing particularly well, according to the annual report.
ABP lost 21.9% on its 3% commodities portfolio, citing “badly performing” oil markets, as well as metals and agricultural products.
The pension fund’s board said it had decided to stick with its 25% interest hedge, “as it didn’t want to steer on current interest levels because of the scheme’s long-term focus”.
It pointed out that a full hedge would hamper its indexation potential in the event of a sharp increase in inflation.
ABP said that during the past 5 years, it had generated €12.4bn of net extra returns thanks to active management, adding that hedge funds had delivered a annual net result of 9.9% during this period.
ABP has more than 2.8m participants in total, who are affiliated with 3.750 employers.