The €18.5bn Dutch pension fund of electronics giant Philips said its 2.4% loss last year was entirely due to its currency hedge.
In its annual report for 2018, the scheme said that the US dollar and the Japanese yen had both appreciated relative to the euro, but its hedge was positioned for depreciation.
Despite the negative contribution to its overall result, the pension fund insisted that it was sensible to keep on hedging currency risk given that its liabilities were in euros. In addition, it said research had shown that running currency risk didn’t pay off in the long term.
However, the scheme said it had decided to halve the full currency hedge in its equity portfolio “for strategic reasons”.
The Philips fund also reduced the strategic allocation of its combined equity and property holdings to 35-45%, following an asset-liability management study. Its fixed income allocation was to range from 55% to 65%, the scheme said.
At year-end, the pension fund held 42.5% in equity and property, and 57.5% in fixed income.
The pension fund said its passively managed government bond portfolio gained 2.9% “following high demand as a result of worries about the economy”.
Mortgages delivered 0.3% as a result of a new valuation method, based on individual housing loans and an interest rate based on consumer tariffs. Without these changes, the gain would have been 2.7%.
It lost 1.6% on its holdings of emerging market debt. Of this, the majority was due to “strong volatility of government bonds of Turkey and Argentina”, the Philips scheme said.
High-yield credit delivered 2.4% – an outperformance of 40 basis points – due to a defensive position aimed at a higher creditworthiness, it said.
The Philips Pensioenfonds credited high returns from property funds for its 3.1% overall gain from real estate. This was 1.7 percentage points short of its benchmark, Philips said, but its portfolio was still under construction and in part invested in cash. The pension fund planned to fill the allocation with indirect non-listed property investments.
Roel Wijmenga, the scheme’s chairman, said the board was concerned about the costs of a transition from average pensions accrual to degressive accrual, planned as part of wide-ranging Dutch pension reforms.
He estimated that costs for his pension fund would be “hundreds of millions”, and urged the government to thoroughly look into the effects of the change in case “the remedy turns out to be worse than the problem”.
Wijmenga said that the Philips Pensioenfonds was soon to begin the selection process for a pensions administrator to take over from PGGM, its current provider, from 2022. The provider would also have to ensure the scheme was optimally prepared for the introduction of a new pensions system.
He added that PGGM would also participate in the selection process and that a decision should be finalised before the end of 2019.