NETHERLANDS - Equity and commodities saw strong returns of over 20% for Provisum, the Dutch pension fund of retailer C&A, and the scheme outperformed its benchmark by close to 2%.
In its annual report, the €1bn scheme announced an overall return of 9.6%, while its benchmark only stipulated returns of 7.8%.
Due to the effect of decreasing long-term interest rates - the criterion for discounting liabilities - as well as an additional provision for rising longevity, Provisum's coverage ratio dropped by 2.8 percentage points last year.
However, due to the need to increase its interest risk hedge to cover liabilities over 60%, the scheme's required financial buffers also decreased, to a level equating a coverage ratio of 116.5%, it said.
In order to decrease its interest risk, Provisum said it has introduced a 30% matching portfolio of long-term bonds as well as zero-coupon bonds.
The fund indicated that the scheme's decision to raise its interest hedge was also triggered by the outcome of a new asset-liability management study, suggesting that the scheme is susceptible to a deflationary scenario.
To decrease inflation risk, Provisum has also introduced inflation-linked bonds, as well as a strategic allocation of 5% to both commodities and credit, it added.
Provisum attributed the performance of its equity portfolio mainly to the performance of emerging markets, and said that its global managers Sparinvest, Mellon and Generation performed very well.
Falling interest rates led to an 8.5% yield of the matching portfolio, with an absolute high reached in August when it peaked at 16.4%. Provisum added that its hedge fund investments generated 9.3%, outperforming their benchmark by no less than 4%.
According to Provisum, both direct and indirect property contributed to the 7.5% yield of its property portfolio.
The pension fund further made clear that it has granted its new pensioners' association the right to nominate pensioners' representatives on the scheme's board, as well as the right to appoint their representatives in the accountability body.
C&A's scheme has also granted its 2,595 pensioners an indexation of 1.57% for 2011, following the consumer index.
As the salaries remained unchanged, the scheme's 3,870 active and 3,560 deferred participants did not receive an inflation compensation, it indicated.