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Dutch Philips scheme amends strategic allocation as returns slump

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The Philips Pensioenfonds has amended its strategic asset allocation, aimed at adjusting the ratio between its matching portfolio and return portfolio as its risk/return profiles change.

According to the €18bn fund’s 2015 annual report, the new allocation sets bands of 50-65% for fixed income investments and 35-50% for securities.

The pension fund, however, has not yet put its new margins to use, maintaining matching and return portfolios at 60% and 40% of assets, respectively.

In 2013, the Philips scheme decided to raise its risk profile for better return opportunities by scaling back its matching portfolio.

The purpose of its new variable allocation is to achieve its target of inflation-proofing pensions, it said.

However, Roel Wijmenga, the scheme’s chair, conceded that indexation would be unlikely over the next 3-5 years, as funding stood at just under 110% as of the end of March.

The scheme can grant partial inflation compensation only once it has achieved a coverage ratio of at least 116%. 

The Philips Pensioenfonds reported a total annual return of 0.2%, compared with 19.6% for the previous year.

High-yield credit, returning 9.3%, was the best-performing asset class, while global credit returned 5.9%.

The scheme incurred a 0.7% loss on its 36% allocation to euro-denominated government bonds.

In contrast, global government paper returned 4.9%, benefiting from the euro’s depreciation against the dollar and other currencies.

Emerging markets debt returned 0.6%.

The Philips scheme cited a new valuation method for a 0.1% loss on its 3% mortgages portfolio.

Real estate, accounting for 11% of assets, returned 5.1%, according to the pension fund, which is still in the process of constructing a portfolio of indirect non-listed real estate, following its decision to divest all its direct property holdings.

It said it was temporarily investing in a combination of listed real estate and cash to get closer to its target profile.

The Philips Pensioenfonds attributed the 8.3% return on its 29% equity holdings to the monetary easing in the euro-zone and Japan.

It reported costs of €171 per participant for pensions provision and said the €20 increase was due to the switchover from provider Aon Hewitt to PGGM at the start of 2016.

It said it spent no more than 10 basis points on asset management due to its relatively large allocation to fixed income, its predominantly passive investment style and its “minimal” allocation to hedge funds and private equity.

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