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Rising interest rates boost coverage ratios at KLM pension funds

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The coverage ratio at the three large KLM pension funds rose by more than 6 percentage points over the third quarter, thanks to rising long-term interest rates and positive returns on investments.

Both the €6.3bn pension fund for ground staff (the Algemeen Pensioenfonds KLM) and the €2bn scheme for cabin staff (Cabinepersoneel) reported quarterly returns of 1.8%, resulting in year-to-date returns of 0.4% and -0.1%, respectively.

The schemes said they benefited in particular from rising interest rates, which have risen by approximately 0.2 percentage points since June.

With funding of 120.3% and 120.6%, respectively, at September-end, the schemes’ coverage now exceeds the government’s required financial buffers.

Both pension funds reported a quarterly return of more than 5% on their equity holdings, as well as a 1.8% return on real estate.

However, due to increasing in interest rates, they incurred losses of 0.3% and 0.2%, respectively, on their fixed income investments.

In addition, they lost 0.1% and 0.2%, respectively, on their interest hedge – covering between 45% and 55% of the interest risk on their liabilities.

They also took a 0.3% loss on their equity hedge, on the back of rising markets.

The €7bn KLM scheme for flying staff (Vliegend Personeel) reported a 1.7% return during the last quarter, and saw its funding improve to 130.1%.

Blue Sky Group manages the KLM pension funds’ assets.

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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