NETHERLANDS – Stichting Pensioenfonds ABP, the Dutch civil service pension fund, has announced a 1.8% return in the third quarter, and says it is pursuing “a cautious path to recovery”.
The fund also said its coverage ratio was static at 104%, due to rising liabilities.
The total portfolio returned 1.8%, with assets growing by 2.5 billion euros to 143.8 billion euros. Equities returned 3.3%, fixed income securities returned 0.1%, and alternative investments returned 3.9% for the quarter.
At the end of the third quarter, fixed income assets accounted for 49% of the portfolio, equities 33%, and alternatives 18%, representing a one percent increase for equities and alternatives since the second quarter. ABP regards this as a cautious strategy.
Says Jean Frijns, director of ABP Asset Management: “Our holding of shares is 33%, slightly below our strategic target weighting of 36%, which means that in the event of substantial price falls in the stock markets, the downwards effect on the return will remain limited.
“Naturally, the flip side of this is that we will profit only to a limited extent from any strong recovery that takes place. Our return over this quarter will be lower than the returns of those funds that have opted for a higher percentage of shares.
“However, the returns we have realised are in line with our long-term aims and are therefore satisfactory. ABP has opted to pursue a cautious but steady path to recovery, because market prospects are uncertain and the current financial position of the pension fund restricts the scope of the risks we can take.”
Despite a positive return, however, a rise in liabilities over the period means that there was no improvement to the coverage ratio over the quarter. Says ABP: “Pension liabilities to our participants increase each quarter by 1.5% to 1.75%. Given a return of 1.8%, assets therefore increased during the third quarter at approximately the same rate as our liabilities. As a result, our financial position, expressed in terms of the “coverage ratio” (assets divided by liabilities) remained unchanged in the third quarter at 104%.”
If the current trend in the return is maintained, however, says ABP, then a stabilisation or modest increase in the coverage ratio will take place for the first time since 1999.
The coverage ratio has fallen since the end of 1999, from 141% to its present level - the low point was 99% in March 2003. The fund says that the coverage ratio will need to improve substantially “before the financial position can once again be described as healthy”.
ABP also announced that the Dutch pensions watchdog has approved its recovery plan, designed to increase the coverage ratio to a minimum of 105%.