The three largest pension funds of KLM began investing in residential mortgages last year in order to diversify, as well as extend the maturity of fixed income holdings. 

Each of the schemes – for cockpit, cabin and ground staff – allocated approximately 7.5% of their fixed income portfolio to mortgages, their respective annual reports revealed.

Earlier, the €7.3bn pension fund for ground staff (the Algemeen Pensioenfonds KLM) said that it expected “above average returns against a low risk”.

Whereas many other schemes are divesting their private equity holdings, the three large KLM schemes said they also continued to build their portfolios, which amounted to €29m, €11m and €34m respectively at year-end.

The ground staff scheme reported an annual result of 14%, whereas the €7.8bn pension fund for pilots (‘Vliegend Personeel’) concluded 2014 with an overall result of 10.9%.

The €2.6bn scheme for cabin staff (‘Cabinepersoneel’) posted a 17.3% profit, and said that 6.4 percentage points were thanks to the interest hedge on its liabilities.

All schemes reported an under-performance of up to 1 percentage point, which they largely attributed to their tactical choice to invest in US high yield and emerging markets debt at the expense of euro-denominated government bonds.

With returns of more than 15%, property was the best performing asset class of the KLM schemes. They cited low finance costs as a consequence of the low interest level.

Their fixed income holdings generated between 9.4% and 12.6%, while their equity portfolios delivered results varying from 10.6% to 11.8%.

The KLM schemes have outsourced both their pensions provision and their asset management to Blue Sky Group.

The pension funds for cockpit, cabin and ground staff said they incurred administration costs of €504, €267 and €189 per participant respectively, while their asset management costs totalled 0.68%, 0.67% and 0.61% respectively.

They added that they would start mapping out the rising costs of external supervision, which they can’t control.

The Pensioenfonds Vliegend Personeel KLM granted all of its 5,275 participants a 1% indexation, whereas the Pensioenfonds KLM Cabinepersoneel gave its active participants 0.11% and its pensioners and deferred members 0.68%.

The Algemeen Pensioenfonds KLM only granted its deferred members and pensioners an inflation compensation of 0.4%.

At June-end, the (official) policy funding of the KLM schemes stood at 127.7%, 114.2% and 115.2% respectively.