Dutch steel scheme boosts real asset, equity allocation
The €7bn Dutch pension fund of steel manufacturer Tata Steel has raised the risk profile of its investments by increasing its stake in equity, credit and property at the expense of fixed income.
The fund said its decision was based on the risk appetite of its participants, as well as on the new financial assessment framework (nFTK), which now allowed for smoothing out any rights discounts over a ten-year period.
According to its 2015 annual report, it increased the strategic equity allocation by 5 percentage points to 40%, while expanding its credit portfolio from 6% to 10% of fund assets.
At the same time, it increased its combined holdings of real estate and infrastructure from 7% to 10%.
As a consequence of the new long-term investment strategy, however, the pension fund’s required funding target rose from 118% to 121%.
The pension fund also introduced a dynamic interest hedge of 60% of its nominal liabilities.
Drawn on a graduated calculation for interest rates of less than 3%, however, the current hedge is no more than 35%.
Pensioenfonds Hoogovens reported an overall result of 2.6% during 2015.
It said equity had returned 6%, with stock in Europe and Asia-Pacific yielding 8% and 22%, respectively.
It attributed the 3% result on US equity chiefly to the dollar appreciating against the euro.
The scheme cited the large proportion of commodities-related companies in the US market as the main cause for the 5% loss on US high yield credit.
In contrast, the same asset class generated 1% in Europe.
The pension fund posted results of 19.6% on infrastructure, 5.7% on property and a loss of 2.6% on fixed income.
It added that it had reduced the number of board members, and had appointed an independent chairman as well as independent internal supervisors in order to increase its efficiency.
Additionally, the fund has also set up a department for board support.
The steelworks’ scheme said it had spent 0.28% of its assets on asset management and 0.08% on transactions, respectively. Costs for pensions administration were €181 per participant.