Provisum, the Dutch pension fund of retailer C&A, has cut its equity allocation by 5% in favour of fixed income holdings in order to protect its financial position.
In its annual report for 2018, the €1.4bn pension fund said it had also raised its interest rate hedge by 10 percentage points to 60% of liabilities, in an effort to protect its ability to grant inflation-linked uplifts and keep contributions low. Its funding level was 132.5% at the end of December.
The relatively high funding ratio had enabled Provisum to grant its participants a full inflation-linked compensation of 2.1% in January, and to keep indexation payments in owed to members at zero.
It was also able to increase its coverage ratio by 5 percentage points through a different way of discounting liabilities, which included valuing its guaranteed annual indexation at 2% rather than at 3%.
The C&A scheme also decided to divest its 8.1% allocation to hedge funds in order to save costs. It had already saved €600,000 on asset management costs last year after switching 50% of its equity portfolio to passive management.
It added that it would assess options for reducing costs further, in relation to services provided by its asset manager Anthos Fund & Asset Management.
The pension fund reported a 16bps reduction in combined asset management and transaction costs to 0.59% in 2018. The cost of pensions provision amounted to €283 per participant.
2018 loss due to equity and credit
Provisum posted an overall loss of 1.3%, largely due to overweighting equity and high yield credit. This was combined with an underweighting of property and hedge funds, its best-performing asset classes, which gained 2% and 6.7%, respectively.
Direct real estate delivered 4.8%, the scheme said, while indirect property produced 17.2% – 9.3 percentage points of which was due to increased valuations.
The C&A scheme said it wanted to switch the emphasis of its 10% strategic property allocation from direct to indirect holdings.
It had already sold 50% of its direct property while on the waiting list for participation in indirect real estate funds run by CBRE and Bouwinvest, it said.
Long-duration German, Dutch and French bonds – held by Provisum for liability-matching purposes – generated 5.9%.
The pension fund incurred losses of 4.7% on equity and 1.9% on both investment grade and high yield credit.
It said it lost 1.8% on its strategic 75% hedge of major currencies, largely due to the appreciation of the US dollar relative to the euro.