NETHERLANDS - PFZW, the industry-wide pension fund for Dutch healthcare workers, has seen its assets fall over 8% since the beginning of this year to just under €82bn but its nominal cover ratio is still above the reporting level required by the regulator to meet pension liabilities.

Details of the pension fund's third-quarter report show the fund saw a 5.5% negative return on assets to the end of September 2008 as a result of market turbulence sparked by the collapse of Lehman Brothers, and this has dragged the year's overall return down 8.1% to reduce assets from €88.5bn to €81.909bn.

That said, the fund's asset management division, PGGM, managed an investment strategy which kept the pension fund just above the required nominal cover ratio at 126%, thanks in part to a drop in interest rates and its impact on bond yields which generated gains for the fund's liability hedging strategy.

In light of all the market turbulence and the impact on its assets, PZW officials say they have followed the guidance of the regulator De Nederlandsche Bank (DNB) and postponed any decision on the indexation and pensions contributions until December.

A further breakdown of the asset management classes and returns reveals equities, commodities and the portfolio of strategies were the worst performing assets classes and portfolios over the three-month period, while in the main fixed income and liability hedging helped prevent those returns from falling further.

Equities, which account for 42.8% of the portfolio, generated negative returns of -9.6% in value in Q3 and dragged the year-to-date return down to -18.2% - although the class was lifted by a 1.5% gain from structured credits - as ‘liquid' equities worth 34% of portfolio fell 11.8% in Q3 and a 7% allocation to private equity generated a 0.8% loss.

The fund's portfolio of strategies, which amounts to just 3.4% of the total allocation, continued its declined in value as the strategy delivered a negative return of -9.6% in Q3 and pushed the year's return down further to -15.3%.

Commodities fared even worse on the back of the drop in the oil price and the global economic declines as the 6.4% holding produced a negative return of -26.9%, and real estate continued its fall as the 15.6% holding has now generated a negative return of -0.8% in Q3 and -3.4% in the last nine months.

 On the upside, the collective move by central banks to reduce base interest rates did improve fixed income yields on government bonds and this lifted the class's 16.3% holding by 0.8%.

It was not all positive news, however, as the drop in commodities dragged a 14.9% holding in inflation-linked bonds down to generate a negative return of 0.7% in Q3, while high-yield bonds fell a further 2.7% on the back of concerns about corporate bonds default risk.

The fall in interest rates also helped the overall portfolio as liability hedging added 1.5% to returns while a 1% allocation to infrastructure also delivered a 1.1% return.

Peter Borgdorff, managing director of PFZW, said while a combination of the negative return, an increase in interest on the provision of pension liabilities and the hedging of interest rate risk in the end lowered its cover ratio by 16 percentage points between July and September from 148% to 126%, he believes market conditions will improve at some stage.

"As a result of the increasing turbulence in the financial markets and the global decline in economic activity, almost all of our investments have fallen in value," said Borgdorff.

"That has negative consequences for the cover ratio in the short-term. We nevertheless continue to focus on the long-term and we can expect share prices to recover in the future. I have every confidence that we can continue to offer our participants a high-quality pension both now and in the future," he added.

According to its latest count, PFZW is the pension arrangement covering 19,400 employers and has almost 1.14 million members - 1.1% more than in 2007.

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