Dutch healthcare scheme PFZW’s dollar hedging position contributed more than half of its overall investment return last year.

In its annual report, the €397bn pension fund said its 70% hedge of the weakening US currency contributed 2.9 percentage points to its overall result of 5.1%.

The scheme has reduced its currency hedging strategy, cutting the number of currencies involved from 14 to seven in order to reduce complexity. It said this decision would have little effect on expected returns or risks in its investment portfolio. 

As well as the currency gains, PFZW also credited an 8.6% yield from its liquid equity holdings, with the best results from its investments in the US and emerging markets.

Private equity was last year’s best returning asset class, delivering a net result of 14.1%, outperforming its benchmark by 6.9 percentage points.

Infrastructure gained 8.8%, outperforming by 2.2 percentage points, PFZW said, while private real estate beat its benchmark by 1.7 percentage points to gain 2.9% overall.

In contrast, the healthcare scheme lost 10.8% on its allocation to structured credit (2.6% of the portfolio) because of the implementation of a new valuation model.

It also reported a loss of 13.3% on its insurance portfolio, which it largely attributed to the depreciating dollar. Less than 2 percentage points was due to exposure to hurricane insurance.

The scheme said that the weakening dollar was also the main cause for a 2.1% loss from its non-euro credit and high yield holdings, as well as a loss on listed property (-2.2%). It made a 2.5% gain on mortgages.

PFZW’s 30.4% fixed income allocation lost 4% during the year, in particular as a result of a 4.4% loss on its interest rate hedging position, which included Dutch and German government bonds.

The pension fund credited a 7.3% profit on its commodities position to rising oil prices in the second half of 2017. 

Its asset management costs rose from 0.46% to 0.49%, which the scheme said was caused by higher performance fees paid to external managers. Transaction costs remained stable at 0.1%.

Administration costs per participant dropped from €67.90 to €64.90 as a result of cost reduction in pensions provision as well as an increasing number of participants.