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Strategic hedge keeps Rabo scheme funding high

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  • Strategic hedge keeps Rabo scheme funding high

NETHERLANDS - The €10bn pension fund of financial giant Rabobank has kept its cover ratio far above the required funding, thanks to an extensive strategic hedge.

The funding ratio of the Rabobank Pensioenfonds was 131% at the end of November, while - thanks to the hedge - a cover ratio of only 108% is required, it said.

The scheme, which had a cover ratio of 159.5% at the end of 2007, is expected to be able to grant a full indexation from 1 July because of this comfortable position, according to officials.

"Our board had taken the risk of very negative returns very seriously, when it decided to protect the required cover ratio before the credit crisis," argued Bernard Walschots, director asset management.

As part of the hedge, the pension fund arranged equity-linked ‘swaptions' for 70% of its balance sheet, said Walschots.

"The remaining assets were hedged through equity puts and interest swaptions," he explained.

Although winding down the scheme's existing interest hedge happened at the expense of a considerable part of its returns over 2007, the ultimate result does more than compensate for this, the director asset management stressed.

Nevertheless, the board said it expects contributions will have to be raised, as a consequence of the drop of the long-term interest rates.

The pension premiums are 30% of workers' salary at present. New employees pay no more than one-third of the contribution, up to a maximum of 6.66% of their salary, although this ceiling has already been reached, officials indicated.

Despite the turmoil in the financial markets, the Rabobank Pensioenfonds has barely changed its strategic asset mix, now consisting of 41.5% of assts in fixed income, 39% in equity, 10% in property and 9.5% in alternatives, said Walschots.

"Because of our strategic hedge, reallocation of assets was not necessary," he said.

The Rabobank Pensioenfonds has almost 90,000 participants, of whom over 45,000 are workers and 34,300 are deferred members.

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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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