NETHERLANDS - The €3.8bn pension fund PNO Media has warned its participants that even a rights cut of 5.9% might not be enough to get funding back on track if its financial position fails to improve before the end of 2013.

In spite of a 2.8% return for the second quarter, the pension fund saw its coverage ratio fall by 2.4 percentage points to 88.8%, due mainly to falling long-term interest rates.

"The likelihood is strong that we can't achieve our recovery target of a funding of 100.1% at the end of 2012, and that the already announced rights discount of 5.9% on 1 April 2013 becomes inevitable," it said.

The scheme said additional cuts at the end of 2013 might be necessary if does not achieve the required minimum of 104.2%.

Private equity, with a return of 8.6%, was the best performing asset class in the second quarter, while investments in infrastructure returned 4.9%.

By contrast, PNO lost 1.2% on its listed equity holdings over the period.

Within its fixed income portfolio, emerging markets bonds delivered the best results, returning 6.4%.

Government bonds and Dutch mortgages returned 2.7% and 1.4%, respectively.

However, scheme indicated that 2.7 percentage points of its quarterly result was due to its 35% hedge of the interest risk on its liabilities.

Following a steep drop in 30-year swap rates in May, it lowered its hedge from 50% to 35% in the belief that the very low interest level justified an increase of its interest risk.

PNO Media has 16,500 active participants, 23,000 deferred members and 8,000 pensioners, affiliated with 500 participating employers.