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IPE special report May 2018

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Dutch pension fund Zoetwaren ramps up risk profile after returning 24%

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Zoetwaren, the €2.1bn pension fund for Dutch confectioners, is planning to increase its risk profile after reporting a 2014 return of more than 24%. 

The return lifted its coverage ratio by 2.7 percentage points to 112.6%, exceeding its mandatory financial buffer by 1 percentage point, according to its annual report.

The scheme’s board said it planned to increase Zoetwaren’s equity allocation gradually from 19% to 23%, citing the outcome of a recent survey into the risk appetite of its participants and pensioners.

The pension fund also replaced holdings in “expensive and non-transparent” hedge funds for real estate and European credit to “optimise” its investments portfolio.

It said improved funding levels had allowed the scheme to grant active participants an indexation of 1% and its deferred members and pensioners an inflation compensation of 0.5%.

Meanwhile, Zoetwaren’s board, drawing on a recent asset-liability management study, decided to increase its risk profile to a funding level of 120-140% to create financial buffers for indexation, according to employers chairman Leo Dekker.

Exceeding the 140% level would trigger de-risking adjustments, Dekker added.

At March-end, Zoetwaren’s official ‘policy funding’ was 113.1%. 

The pension fund said it kept its contribution for 2015 at 27.6% of the pensionable salary.

The annual result of the industry-wide scheme was, in part, due to its hedge of the interest risk on its liabilities, which had been 75% initially but was reduced to 65% over the course of the year.

The interest cover – a combination of AAA government bonds and interest swaps – made up the scheme’s 55% matching portfolio, which returned 35.7%.

The pension fund’s return portfolio generated 8.2%, with all asset classes delivering positive results.

High-yield bonds produced a 10.2% return due largely to credit.

Equity returned 13.9%, with low-volatility stocks generating the best results, the scheme said.

However, Zoetwaren reported an unspecified loss on its hedge of the US dollar and the British pound.

The pension fund also reported asset management costs of 0.45%, and attributed the reduction of 0.13% to lower performance fees, as well as increased passive management within its matching portfolio.

Zoetwaren has 8,000 active participants, 29,000 deferred members and 9,350 pensioners, affiliated with 210 employers.

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