NETHERLANDS - De Eendragt Pensioenfond, the pension fund-turned insurance company and winner of the highest accolade at last year’s IPE Awards, has bucked the current trend in Dutch pensions investment by delivering a 4.4% positive return in 2008.

De Eeendragt was technically a pension until February 2006 when officials changed its status to an insurance company, though Philip Menco, director at the fund, notes the assets and administration are managed exactly as they would have been as a pension fund so he is pleased with the impact this strategy has had on returns.

The company returned 4.4% over the year largely because it has 100% hedge on interest rate risk and approximately 74% of the assets, or around €750m, were held in government bonds.

Liabilities rose over the year as interest rates declined, said Menco, rising from €615m to €750m, but the huge allocation to government-issued fixed income paper helped to generate a 29% return on the active members’ matching portfolio and 13% for its non-active (deferred and retired) members’ matching portfolio.

“Risk is the key thing to manage and not expectations about performance,” said Menco.
“Like most former industrial pension funds, we have an ageing population. But the key to positive returns is government bonds, no other corporate bonds,” he continued.

In contrast, the company - which now runs pension asset for 34 clients - did lose 40% on its equity allocation, which reduced substantially from 40% at the beginning of the year - overweight its 35% benchmark - down to 23% by the end of December 2008.

The situation could have been much worse had the team decided to hold onto the emerging markets portfolio, said Menco. That portfolio had been worth10 percentage points of its equity holding in August.

Similarly, the company bought some leveraged loans in the hope that prices were already low at 80% and would eventually rise. Instead they fell to 60%, although Menco said the loss was not severe as only €5m had been invested in this strategy, as the company now has assets under management worth around €1bn in value.

Another loss came from the portable alpha overlay that was terminated in the fourth quarter. However, most of these investment portfolios are invested in non-listed real estate and these fell only 3% last year, limiting the total loss to the portable alpha portfolios.

De Eendragt runs separate matching portfolios for active and deferred members, as its non-active members make up the largest chunk of members.

Full cost of living adjustment is being paid to all members at this time, said Menco, even though the non-active buffer generated a 19% negative return as assets are all held in equities and real estate.

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