The €17.5bn Rabobank Pensioenfonds saw its 8.4% return on investments largely evaporate due the effect of rising equity markets and swap rates on its hedging policy for equity and interest risk on liabilities.
As a result, it lost 7% on its hedge.
In addition, it lost 0.8% on its inflation swaps, in the wake of the expected slowdown of inflation, it said in its 2013 annual report.
The pension fund’s net return of 0.8% included a 0.3% return on its currency hedge.
With a return of 24%, the 41% equity portfolio was the best performing part of the scheme’s investments.
It added that developed market equities, through Robeco’s Global Equity, returned no less than 47%.
Private equity and global high yield also performed well, generating 6.8% and 7.5%, respectively.
The pension fund noted that lower-rated high yield and investment-grade bonds achieved better results than higher-rated investments in both asset classes.
As a consequence of the increased interest rates, the Rabobank Pensioenfonds lost 0.2% on its 42% fixed income portfolio, it said.
The scheme indicated that it had decreased its active risk budget for fixed income, and also limited its deployment to active countries allocation, following “years of disappointing performance” by Robeco, its main asset manager.
It said it also transferred the management of its mortgages mandate to Aegon Asset Management, after Robeco decided to cease managing this strategy.
The annual report showed that a new investment in risk parity – a strategic allocation to traditional asset classes with a risk-based portfolio spread – incurred an 11% loss.
The scheme attributed the negative result to the effect of the US Central Bank’s statements on monetary policy.
The Rabobank Pensioenfonds also reported returns of -0.7% on its 9.2% holdings of alternative investments, and 3% on its 7% property allocation.
It said it kept its hedging policy against extreme investment risks largely intact, only replacing expiring total return swaps with equity options and, as such, increasing its exposure to equity markets.
According to the pension fund, a new asset-liability management study (ALM) showed that its recent change from defined benefit to collective defined contribution arrangements had only limited consequences for its strategic asset allocation and strategic risk management.
Last year, the Rabobank Pensioenfonds granted its pensioners and deferred members an indexation of three-quarters of the consumer index.
Its active participants did not receive an indexation, as their salaries were not increased last year.