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Interest rate hedge limits TNO’s loss

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  • Interest rate hedge limits TNO’s loss

NETHERLANDS - The TNO pension fund's investments yielded a negative return of almost 5% in 2008, despite adopting a high interest rate hedge.

Although the fourth quarter's results of the Stichting Pensioenfonds TNO were 0.34%, its returns over the full year 2008 were -4.94%, reported the pension scheme for the institute for applied scientific research.

The pension fund's 75% interest hedge applied during the second half of the year - raised from 50% - prevented an additional loss of 9%, officials pointed out.

At the same time, the strategic allocation to equity was decreased by 5% following an earlier allocation decrease of 4% in 2007.

Joop Ruijgrok, the scheme's director, said the divested assets have been reallocated to fixed income, which now account for 42% of the portfolio.

The fund's strategic allocation to listed equity is 25% at present, he told IPE, though said its allocation to other asset classes has little changed.

The pension fund also had an 11.9% allocation to property in 2007, along with 8.2% in private equity, 5.9% in fund-of-hedge funds and 4.8% in cash.

The TNO pension fund had a cover ratio of 103.2% by the end of 2008, down from 134% a year earlier.

The scheme's board said it has decided not to grant any indexation for 2009, given the fund's financial position.

Pension fund contribution have also been raised from 15% to 17.5% of salary, including a 1% premium for the employer, who pays approximately two-thirds of the contribution.

The TNO pension fund granted its participants an indexation of 3.2% at the beginning of 2008, following returns of 2% in 2007.

The scheme's assets totalled €1.8bn at the end of November, which was down from over  €2.1bn at the end of 2007, and had 5,555 active participants, 4,800 deferred members and 4,245 pensioners at the end of 2007.

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