NETHERLANDS - PDN, the €4.1bn Dutch pension fund of chemicals giant DSM, lost 18.8% on its investments last year and fell short of its benchmark by 3%.
The scheme said in its annual report the pension fund's investments in inflation-linked bonds were the best performing portfolio as they delivered a return of 2.7%.
During the second half of 2008, the scheme decided to increase its investments in inflation-linked bonds, which happened mainly at the expense of its equity portfolio, bringing its allocation to 18.5%, and exceeding its strategic allocation by 6%.
Although PDN's fixed income investments - which account for 42.3% of the scheme's portfolio - generated a positive return of 1.5% though this was still more than 4% under its benchmark.
The pension fund's 2.6% allocation to indirect listed property was the worst performing portfolio, returning -43.4%, followed by equities which lost 40.6% on investments. Emerging markets equity holdings fared worst as they lost 54% in 2008.
According to PDN, the impact of the credit crisis on the mutual correlation of alternatives undid the diversifying capacity of its 8.5% holdings in alternatives, and instead created a 28% negative return.
The board subsequently decided to restructure the fund's commodities allocation and instead make additional investments in microfinance, infrastructure, renewable energy and unlisted indirect property.
Despite the disappointing overall performance of its portfolio, the scheme stressed its average long-term return is 6.5%, which is still 0.3% higher than that required under its asset-liability assessment.
The pension fund's cover ratio - which had been 160% in the second quarter of 2007 - had dropped to 98% by the end of 2008, requiring the scheme to submit a short-term recovery plan to pensions regulator De Nederlandsche Bank, though details are not set to be published.
PDN attributed 40% of the cover ratio's drop to lower interest rates, against which it had bought a 50% hedge.
The scheme also hedged its inflation risk through inflation-linked bonds and ‘swaptions' last year, while it had covered 65% of the currency risk on the US dollar, UK pound, Swiss franc and the Japanese yen.
The DSM scheme requires a 21% contribution of an individual's salary, the bulk of which is paid by their employer.
PDN has 40,200 participants, of whom 14,700 are pensioners and 8,500 are deferred members.