NETHERLANDS - Alternative investments was the best returning asset class for the large civil service pension scheme ABP, while total returns on investments reached 3.8% during 2007.
Details of the pension scheme's results reveal commodities, infrastructure and private equity yielded no less than 31%, 21% and 29.4% respectively in the last 12 months and all asset classes, with the exception of real estate, showed positive returns, increasing ABP's assets under management to €217bn.
"The past year was one with two faces," Roderick Munsters, ABP's director of asset management said. "The first half yielded proper returns, but the second half clearly performed less well, because of the credit crisis.
"We expect the unrest in the financial markets to continue during the next half year, while we consider increasing inflation as an explicit risk," he added.
The second half of the year - with total returns of 0.7% - revealed very strong performance in commodities (23.1%) and infrastructure (16.1%) in particular.
Thanks to the continuing credit crisis in the US, equity generated a negative return of -3.5% over the last six months, while property yielded a negative return of -7.4%, culminating in negative returns of 9.4% for the whole year, the scheme made clear.
Hedging of the dollar had a positive effect on the returns, ABP said, adding it partly hedges the interest risk on its balance by extending the average duration. However, the interest rate-rise caused a negative effect on the interest risk-hedge last year.
At the end of 2007, ABP had allocated 40.3% of its assets to fixed income, which was 1.5% down on the previous year while listed stocks, private equity, property, infrastructure and commodities accounted for 55.2% - a rise of 0.8%.
ABP's coverage ratio rose by 6.8% to 140.3%, allowing the scheme to grant its 2.7m customers - for the first time since 2003 - a full indexation of 2.05%, plus an extra indexation of 1.96% to compensate for the shortfall during the past four years.
"Because of the granted indexation, 2007 has been a good year for our participants. Despite the solid indexation and lower returns, ABP's financial position has further improved," Dick Sluimers, executive chairman, stressed.
ABP officials say they are ‘cautiously optimistic' about the macro-economic prospects and believes a US recession in the US might not happen, because the largest part of the correction in its housing market has already taken place.
The civil service scheme expects returns in 2008 to be a mirror image of 2007, with well-returning governments bonds and index-loans during the first half, and proper yields of more risky investments in the second half.
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