KLM pension funds profit from overweighting of equities
An overweight position in equity holdings – at the expense of government bonds – added the most value to returns at the three KLM pension funds in 2013, according to Mark Burbach, CIO at their asset manager Blue Sky Group.
The three schemes, with combined assets of €15.5bn, delivered annual returns of between 1.4% and 2%, with fourth-quarter results ranging from 1.5% to 1.6%.
The best performing asset class was equity, generating up to 18.2% during the year.
“Although we had expected an outperformance for equity, the degree of consistency of our risk on trade took us by surprise,” Burbach said.
He added that Pacific and North American equities accounted for most to the results, and noted that the regions’ frontier markets made strong comeback last year.
European low-volatility equity also performed very well over the period, he said.
Blue Sky’s CIO said the €2.1bn pension fund for cabin staff was reviewing investments in sustainable equity, following returns of no more than 6.9% and high costs.
“Therefore, it has decided to disinvest from sector-specific funds, such as microfinance and alternative energy,” he told IPE.
Following rising interest rates, the three KLM schemes – for pilots, cabin staff and ground crew, respectively – lost up to 8% on their fixed income portfolios.
Burbach said the performance of euro-denominated government bonds had been the worst since 1986.
Overweight positions in US high-yield credit contributed positively, while emerging market debt – denominated in US dollars and local currencies – generated significantly better returns than developed-country government bonds.
The KLM schemes reported returns of up to 13% on Asian property and 14% on private property investments in the US.
Private and listed real estate in Europe returned 10% and 7%, respectively.
Due to rising interest rates and improving equity markets, the pension funds’ 50% interest-risk hedge caused losses of up to 1.8%, while the schemes also lost up to 1.1% on their equity cover.
The pension funds saw their coverage ratios improve to 123% (cabin staff), 122% (ground staff) and 132.8% (pilots) last year.