NETHERLANDS - Hedging the interest rate risks of its liabilities, combined with the rising interest rates, seriously affected last year's returns at the €4.7bn building corporations pension fund SPW.

While gross returns amounted to 4.7% - which was 0.1% short of its strategic benchmark - the interest hedge kept the net returns down to 1.2% over the year, the scheme revealed in its preliminary figures, while SPW's investment portfolio saw a negative return of -0.9% during the fourth quarter.

Equity was the best returning asset class in 2007, generating a yield of 8.1%,  the industry-wide scheme reported, while fixed interest and property returned 2.3% and 0.9% respectively.

Rising oil prices was the main contributor to a 5.1% return on the alternatives portfolio, SPW said.

Because SPW had not fully hedged its interest risks, its coverage ratio increased to 145% at the end of the year, scheme documents reveal.

However, thanks to an extra indexation of 4.68% for active workers and 2.53% for pensioners and deferred members, the fund's funding ratio fell by 6 and market turmoil forced the coverage ratio to decrease to just under 130% at present, an SPW spokesman told IPE.

While SPW's strategic plan provides for a full interest rate hedging of its liabilities, the actual amount hedged at the end of the year was 90%, the spokesman pointed out.

The scheme is planning to partly hedge its equity risks during the first six month of 2008, although decisions still need to be made on how and where this should happen, said the spokesman.
In addition to the granted indexation, SPW has also decided to lower the employees' contribution by 2% in total, consisting of an actual decrease of 1%, so another 1% to be paid by the employers from now on.

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