NETHERLANDS - The €1.3bn pension fund for dentists and dentist-specialists (SPF) returned 3.7% on investments last year, thanks to an extensive derivatives-based hedge.

Officials have claimed without the hedging strategy, the occupational scheme's portfolio would have returned -15.1%.

SPF had a 100% hedge in place at the end of 2008 against both its interest rate risk and its currency risk, while its equity risks had "in part" been covered through the 21.2% portfolio of derivatives, according to officials.

Despite the positive return, the scheme's funding had a cavity to fill by the end of the year as its cover ratio fell to under 99% by the end of 2008 - over 5% short of its required funding.

Officials said in order to speed up the recovery as set out in its five-year plan, the board is in consultation with pensions regulator De Nederlandsche Bank about an adjustment to its investment policy.

The pension fund indicated that its 32.2% equity allocation lost 40.1% last year, though asset manager Walter Scott is claimed to have performed considerably better than the portfolio's benchmark.

The dentists' scheme also said it was able to save €1.8m on fees by replacing two active asset managers with passive mandates and shift its entire portfolio to passive management, in a move designed to increase efficiency, performance and transparency.

The scheme said it had also changed the management structure of its 46.6% fixed income portfolio, which returned 10.2%, in order to cut management costs.

However, its convertible bonds yielded -24.2%, which still meant an outperformance of the benchmark of 5.4%. according to SPF.

SPF closed entry to new members and contributions in 1997, while participation was still mandatory.

However, a survey will be conducted, no later than 2011 according to officials, to find out whether the scheme's members still support a continuation of the mandatory participation..

Although SPF's aim is to fully compensate for inflation, the board decided to refrain from indexation this year, after granting an increase in pensions and pension claims of 1.6% on 1 January 2008.

SPF has 5,110 active participants and 2,560 pensioners.

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