Ahold pension fund hangs on to poorly performing commodities
NETHERLANDS – The €3.1bn Dutch pension fund of food retailer Ahold has introduced commodities and high-yield bonds to its investment portfolio at the expense of equity holdings.
According to its 2012 annual report, its 2.3% commodities allocation, managed by Bank of America Merrill Lynch, lost 7.5%.
However, a spokesman for the scheme said it would continue its policy for the time being, “as we need time to assess the manager and would like to wait for the outcome of a new asset-liability management study”.
The pension fund reported an overall return of 14.4%, with the more than 70% hedge of the interest risk on liabilities contributing 3.5 percentage points, thanks to decreasing long-term rates.
Its 23.3% equity portfolio returned 16.5%, whereas its 61% fixed income holdings returned 9.1%.
High-yield bonds returned 13%.
The fund’s 8.4% property investments returned 11.5%, with European listed property returning 29.4% and non-listed property 1.9%.
Despite private equity’s 4% return falling more than 12% short of its benchmark, the pension fund said it intended to increase the current 3.3% allocation to the strategic level of 5%.
It attributed the underperformance to the fact the ‘norm’ portfolio consisted of listed equity, which increased significantly last year.
The fund also pointed out that private equity returns have been 6.6% on average over the last six years, exceeding the average equity results by more than 3%.
It said it converted its holdings in European corporate bonds into global credit, managed by JP Morgan, Rogge Global Partners and Wellington Management.
Last year, the Stichting Pensioenfonds Ahold saw its coverage ratio increase by 8 percentage points to 114.3%, enabling the scheme to grant an indexation of 50% of the consumer index.
The scheme added that it would gradually double the workers’ contributions over the next four years until the employer’s contribution reached 80% rather than the current 90%.
However, during the same period, it will decrease the ‘franchise’ – the part of the salary excluded from pensions accrual – by €1,000 in total, to €15,500.
It has also committed itself to an extra contribution of €150m to plug the funding shortfall over the next five years.
The pension fund said it largely replaced its portfolio of interest swaps for new swaps, and that it re-invested the proceeds of €267m.
Its spokesman said: “The swaps’ value had increased so much that it represented a too large part of our assets.”
Last November, the pension fund replaced part of its 40 and 50-year swaps with 20-year swaps to reduce coverage-ratio volatility.
It currently has 33,150 active participants, 37,350 deferred members and approximately 11,000 pensioners.