Interest hedge boosts returns at pension fund for cleaners
NETHERLANDS - The €2.4bn pension fund for the Dutch cleaning and window-cleaning sector reported a 10.7% return for 2011, with 7.9 percentage points resulting from a 60% hedge of the interest risks on liabilities.
The fund, however, saw its coverage ratio shrink from 107.7% to 99.1% due to falling long-term interest rates, the criterion for discounting liabilities, according to its annual report.
As a result, the scheme confirmed that rights cuts of 1.2% would occur on 1 April 2013 if it failed to increase funding to at least 104.6%.
The coverage ratio dropped further to 92.7% at the end of July, despite the pension fund’s raising its contribution from 18.5% to 21% of the pensionable salary.
After conducting an asset-liability management study, the pension fund said it decided to cut its equity allocation to just over 13% in favour of its fixed income portfolio (72.6%).
It increased the regional spread of its equity investments and boosted its allocation to emerging markets and other Asian countries at the expense of Europe and Japan.
It also further reduced its allocation to European government bonds in favour of mortgages, emerging market bonds and high-yield bonds.
The pension fund reported an 8.1% loss on its equity holdings and a 4.3% profit on its fixed income investments.
Both its liquid assets and alternative investments returned 5.9%, with infrastructure returning 9.3% following a re-rating to ‘fair value’ of its investments in UK funds, it said.
The cleaners scheme attributed 0.2 percentage points of its overall result to its currency hedge.
An additional 0.25 percentage points was due to its dynamic asset allocation, it said.
The pension fund has almost 121,000 active participants, more than 368,500 deferred members and 13,165 pensioners, affiliated with almost 3,200 employers.