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Real estate drives 17% return at pension fund for KLM cabin staff

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KLM’s three large pension funds in the Netherlands all reported strong results for 2014, with the €2.5bn scheme for cabin staff returning more than 17%.

The fourth quarter contributed 4.5 percentage points to the cabin staff scheme’s annual return, with returns of 1.3% for government bonds, 2.5% for equity and 6.8% for property.

For the whole of 2014, bonds, equity and real estate returned 10.4%, 10.7% and 16.2%, respectively, the Pensioenfonds KLM Cabinepersoneel said.

The 50% hedge of the interest risk on liabilities contributed 6.4 percentage points to the annual performance.

Mark Burbach, CIO at Blue Sky Group, the asset manager for the KLM schemes, said listed property returned 21.9%.

He said the return had come from “a very low point of the market” two years ago, as well as the continuously diminishing costs of capital. 

He added that listed property in the US had delivered the best results.

Burbach said he was very pleased with the 10.3% return on private property, and attributed the result to “a combination of high-quality assets, active management, low leverage and relatively long underlying rental contracts, which provided stability”.

He added that the pension fund wanted to increase the strategic allocation to private real estate gradually from approximately 50% to 60% within a year, “as it is expected to generate a more stable cash flow than listed property”. 

Currently, the scheme’s property portfolio is almost equally divided between private and listed property.

However, with a return of 24.4%, private equity was the pension fund’s best returning asset class. 

Burbach attributed the result chiefly to the value increase of secondary funds, adding that the rise of the US dollar against the euro had also provided a tailwind.

The scheme for cabin staff closed out 2014 with a nominal funding of 115.1% – representing a shortfall of its required financial reserves of 6.6% – and a real coverage ratio of 80.8%.

KLM’s €7.3bn pension fund for ground staff (Algemeen Pensioenfonds KLM) reported an annual return of 14%, following a fourth quarterly return of 3.5%.

With annual and quarterly results of 15.8% and 6.5%, respectively, listed property was also the best performing asset class.

Bonds and equity delivered 12.4% and 10.5% over the full year.

The scheme added that its 50% hedge of the interest risk on its liabilities contributed 2.3 percentage points to the annual return.

However, it noted that it had been unable to benefit from the rise of the US dollar against the euro, as it had largely hedged currency risk.

As of the end of December, the ground staff scheme had a nominal funding of 116.3% – 3.1 percentage points short of the required level.

The €7.8bn pension fund for pilots (Vliegend Personeel KLM) reported a 2.5% quarterly return, leading to an annual return of 11%.

At the end of 2014, the pension fund had a coverage ratio of 126.3%, exceeding the mandatory funding by 7 percentage points.

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