ING’s closed €25bn pension fund in the Netherlands has benefited greatly from falling interest rates, returning more than 32% on investments over 2014.
The combination of falling interest rates – which dropped from 2.7% to 1.4% – and the scheme’s 76% allocation to government bonds and interest rate swaps led to a return of more than 40% on fixed income holdings over the period.
The ING scheme, which has been closed to new entrants since last year, said increasing spreads between the large economic blocs had generated returns on governments bonds and interest swaps with a 50-year duration of up to 50%.
The pension fund’s 16% equity allocation returned 17.6%, with US equity returning almost 10%.
Emerging market equities returned 1.1% due to currency appreciation against the euro, as well as falling oil prices.
The scheme reported a 21.6% annual return on its 4.7% real estate portfolio.
Listed property returned 8.7% over the course of 2014 on the back of a 12% fourth-quarter return.
Its 2.6% alternatives allocation, comprising hedge funds and private equity, returned 19.3%.
However, the scheme said it incurred a 1.4% loss on its 50% hedge of the six main positions in foreign currencies last year.
The ING pension fund closed the year with a funding ratio of 129.9% against market rates, equating to a coverage of 89.2% in real terms and an ‘official’ funding of 144.8%.
In other news, the €19.6bn pension fund for private road transport (Vervoer) reported an annual return of 27.6%.
The pension fund, which did not publish a breakdown of its returns, had allocations to fixed income, equity and real estate of 59%, 28.5% and 2.1%, respectively.
In 2014, it hedged 85% of the interest risk on its liabilities, covering 100% of the risk on the main currencies.
However, due to increased liabilities as a consequence of falling interest rates, its coverage ratio increased by 2.5 percentage points to 111.5% last year.
It noted that its funding was still based on the three-month average of market rates, and estimated that, if interest rates remained at their current level, its coverage ratio would drop by 5.4 percentage points by year-end.
Meanwhile, the €6.7bn pension fund of chemical conglomerate DSM (PDN) and the €5bn Dutch scheme of Akzo Nobel (APF) both returned 17.7% on investments last year.
The €13.1bn industry-wide pension plan for the agricultural sector (BPLandbouw) and the €3.8bn scheme for the merchant navy (Koopvaardij) reported annual returns of 20% and 20.9%, respectively.
PNO Media (€5.1bn) and the pension funds for Architects (€3.5bn) announced results of 16% and 18%, respectively.