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IPE special report May 2018

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Douwe Egberts scheme aims at risk for return

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The €1.4bn pension fund of coffee producer Douwe Egberts (DEPF) said it is to adjust its tactical asset mix towards more risky investments in order to generate higher returns. 

Within its matching portfolio, the fund said it would underweight its 36% strategic allocation to a Qualified Investment Fund (QIF) and long-term bonds, in favour of its current 24% stake in other fixed income investments.

It also said in its 2013 annual report that it would assess whether adding asset classes such as mortgages and direct loans could improve returns.

The pension fund said that it would also increase its strategic 30% equity stake at the expense of commodities in its return portfolio, adding that it would also assess the options of a change to a smart beta benchmark for equity developed markets.

Last year, it transferred its equity of developed countries from SNS funds to its Northern Trust mandate, “for improved efficiency and lower costs”.

In addition, DEPF also decided to change the management of its two passively managed commodity funds to a discretionary portfolio with exchange-tradeble futures.

DEPF reported an overall result of 2.5% over 2013, including a 1.1 percentage point yield from its 66.7% hedge on the main currencies.

Bonds – including interest derivatives – generated a 2.8% loss, which was however an out-performance of 1% over the benchmark. 

With returns of 12.3% and -10.9%, equity and alternatives fell 2.8 and 4.2 percentage points respectively short of their benchmark, according to the Douwe Egberts scheme, which attributed the result on equity chiefly to disappointing performance of emerging markets.

That said, the pension fund noted that its result still constitutes to an overall out-performance of almost 1%, thanks to its over-weighted credit allocation and a 4% under-weighting of alternatives in favour of equity last year.

DEPF, which ended 2013 112% funded, granted its pensioners and deferred members an indexation of 0.3%, while awarding its workers with a 2% compensation for inflation.

In 2011, the pension fund established a special indexation reserve of €60m for its employees, consisting for two-thirds of credit and for one-third of inflation-linked bonds. 

However, the sub-fund delivered a 0.8% loss over 2013, in particular due to a 4% loss on inflation-linked bonds, the scheme made clear.

Last year, the pension fund reduced its contribution from 26% to 21% of the pensionable salary, adding that the lower contribution was still covering costs.

The board of DEPF also indicated that is was assessing whether an additional hedge of the interest risk against a further rates’ drop was feasible through swaptions, and said that it was considering to increase its interest hedge – 54% at year-end – when long-term interest rates would rise.

The Douwe Egberts Pensioenfonds has 1,655 active participants, 3,605 deferred members and 4,215 pensioners.

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