Progress, the €4.6bn Dutch pension fund of Unilever, saw its net return for 2013 fall below 2%, following a considerable setback due to its interest and inflation hedges.
As a result of both rising interest rates and falling inflation, the scheme saw a 6.8 percentage point decline in returns despite investments otherwise returning 8.7%.
Over the course of 2013, the scheme managed to outperform its benchmark by 1.4 percentage points, citing returns of 24.1% from listed equity and 15% from private equity.
According to Rob Kragten, the scheme’s director, the yield on its fixed income holdings was “slightly negative”.
Despite the disappointment, Progress’s board said it was not dissatisfied, as the increased interest rates also caused its liabilities to drop by €174m.
“As a result, the nominal funding improved from 133% to 139%,” it said.
The scheme’s real funding increased to 106%, making Progress one of the most financially sound pension funds in the Netherlands.
Kragten said that the fund had hedged around 60% of its interest rate and inflation risk during 2013.
He pointed out that under the pension fund’s risk policy, the level of both hedges rose in line with the scheme’s coverage ratio.
Progress said it had also covered 80% of the currency risk of its equity portfolio, but added that it had not yet measured the outcome over 2013.
The scheme’s interest and inflation derivatives contributed 4.3 percentage points to its overall result of 18.1% for 2012.
The Unilever scheme has 3,420 active participants, 6,940 deferred members and 12,435 pensioners.