The €1.4bn pension fund of Dutch Automobile Association ANWB has raised its strategic equity allocation from 30% to 36% at the expense of its discretionary matching portfolio, which was lowered to 38%.
In its annual report for 2016, it said the adjustment came in the wake of a switch to a dynamic investment policy, following an asset-liability management study.
However, as the pension fund – with a funding of 95.9% last July – was not allowed to raise its risk profile, the allocation change couldn’t be fully implemented this year, it said.
At the same time, the scheme increased its interest hedge from 46% to 60.5%, ahead of a planned further rise to 65%. It said its interest cover was based on the swap curve and comprised of payer swaps as well as receiver swaps.
Last year, the ANWB Pensioenfonds divested its quanto put options – an instrument without exposure to currency risk – which it had held since 2012, when they were to cover 50% of its equity risk.
The equity hedge was no longer needed, the scheme said, as its funding would remain above the set trigger of 80% without the options.
Henk van Drunen, the pension fund’s director, told IPE that the complexity of the hedge was an additional reason to divest, “as the options were difficult to evaluate and their impact was often opaque”.
Last year, the put options came at the expense of 0.17 percentage points of the scheme’s overall result because of rising equity markets.
The pension fund reported an overall result of 9.7%, chiefly due to the effect of the falling interest rates on its matching portfolio, which generated 12.8%.
The interest hedge contributed almost 4 percentage points to the result. In contrast, its cover of the US dollar, Canadian dollar, the pound and the yen caused a loss of 1.1 percentage points.
Credit, high yield and emerging market debt – placed in pools – jointly produced an 8.8% return, while equity gained 8%.
The scheme also divested a 4% holding in commodities futures, following a loss of almost 26% in 2015.
It said that government bonds in its liabilities portfolio had returned almost 3.7%. However, it lost almost 0.4% on its stake in Merrill Lynch euro-denominated money market fund, citing “negative capital market interest rates as a result of the ECB’s policy”.
The ANWB scheme said that investments were managed passively in principle, and preferably through discretionary mandate because of lower associated management costs, transparency and flexibility.
This approach also provided better options for a bespoke policy for responsible investment, according to the pension fund.
The board said it currently didn’t see the need to adjust its pension scheme, but made clear that it was actively assessing the pension fund’s future for the mid term.
The ANWB Pensioenfonds is preparing for central clearing of its derivatives in compliance with incoming European rules, and has therefore placed its interest swaps into a single mandate.