NETHERLANDS - The €1.9bn pension fund of the institute for applied scientific research TNO managed to limit its loss to - 7.1% thanks to major hedging of both its interest and currency risks.
Without its 74% interest hedge on liabilities and 60% hedge of the main currencies, the total returns would have been - 15.8%, the Rijswijk-based scheme said in its annual report.
The scheme's 20.2% equity allocation returned -38%, whereas its 43.8% fixed income investments yielded 3.7%.
Property and hedge funds - with allocations of 7.7% and 5.5% respectively - returned -5.2% and -13.6% respectively, according to the report.
Although its 9.9% allocation to private equity, showed a negative yield of -7.5%, its performance was much better than the benchmark of -35.3%, officials said.
The cover ratio of the Stichting Pensioenfonds TNO dropped from 134% to 101% during 2008.
It said its recovery plan aims at restoring the funding ratio to 117%, which equals the required financial reserves, within four years by refraining for granting any indexation.
In addition, the scheme has raised its contributions from 15% to 16.5%, while the employers will increase their contribution by an extra 2%, officials pointed out.
According to the scheme, asset manager BlackRock has been given the role of lead overlay risk manager, supporting the set-up of the investment portfolio and investment policy.
It has also appointed BlackRock for the worldwide tactical asset allocation mandate, as well as the management of TNO's fixed income investments and the passive hedging of interest and currency risks.
Following the changes, the TNO pension fund said it has set up a new strategic portfolio as a benchmark.
In order to decrease its risk profile, the scheme has lowered its equity allocation by 14% to 20.2%, and has introduced fixed income investments in emerging markets, high yield loans and a global tactical asset allocation mandate, it indicated.
That said, the GTAA returned a disappointing -26.3%, which officials attributed to high volatility and a sharp decline of the equity markets.
The Stichting Pensioenfonds TNO indicated that it would prepare a new benchmark portfolio for 2010 and fine-tune the monitoring of the risk management.
The pension fund of the research institute has 5,535 active participants, 5,030 deferred members and 4,155 pensioners.