NETHERLANDS - The €2.1bn pension fund of the industrial conglomerate Stork managed to limit its losses to 13% in 2008, largely thanks to a strategic 70% interest rate hedge on its liabilities.
Without this interest hedge, which was tactically increased to 85% during the fourth quarter of 2008, and without a 90% hedge on its strategic positions in US dollars, the scheme's results would have been -19.2%, according to the fund's annual report, which has just been published.
"Because we are a long-term investor, we did not change our strategic portfolio last year, and we intend to follow this approach during 2009, but we will keep on making tactical adjustments based on risk premiums," commented chief investment officer Alfred Slager, who succeeded Hein Brans in April.
The scheme's equity investments - underweighted by 5% against its strategic allocation of 35% - returned -39.8%.
The pension fund said it has now purchased forward contracts, in a bid to prevent the tactical allocation from dropping below 30%.
It has also increased its allocation to emerging markets from 7% to 10%. "Despite the volatility of last year, we expect stability for the long term," Slager pointed out.
With a return of 1.1%, the fixed income portfolio fell 5.3% short of its benchmark, which the CIO attributed to disappointing performance of active managers as well as an overweighting of credit risks in its 5.8% high yield investment.
"That said, by sticking to the investment style, the same managers have already considerably beaten the benchmark this year," according to Slager, who declined to provide details.
The CIO further indicated that the 7% investment in alternatives has been slightly decreased, after a loss of 24.8% last year, which was no less than 35.3% short of the benchmark.
Slager attributed the disappointing result to the hedge fund sector, which failed to deliver the absolute return targets. "However, the volatility of the market last year has largely disappeared now," he noted.
The 15% property allocation - largely in non-listed real estate - returned -14.4%
At year-end, the scheme had a cover ratio of 90%, which was down 34% compared to the end of 2007.
As part of its mandatory five-year recovery plan the pension fund has continued its 25.8% contribution of pensionable salary. In addition, the scheme said it has maintained a 6.6% salary-linked premium to fund its pre-pension arrangements.
The Stork pension fund has 38 affiliated companies, and has 9,355 active participants, 25,270 deferred members and 14,980 pensioners.