The London Pensions Fund Authority (LPFA) has produced a 12.4% net return on investments in the year to the end of March 2013, after removing an interest rate hedge produced £178m (€210m) for the public sector scheme.

The net return on investments of 12.3% in the 12-month period compares with 4.2% reported for the previous year.

The gross return on investments rose to 12.9% from 5%.

“The performance was positively impacted by a strategic decision, informed by an environment of continuing interest rate stability, to remove an interest rate hedge, which harvested a benefit of £178m,” the LPFA said.

Fund assets rose by £427m during 2012-13 to end the financial year at £4.6bn.

The authority said that, despite challenging market conditions, both the active and pensioner sub-funds – which will soon be merged – saw strong growth in the year.

The active sub-fund returned 12.6%, and the pensioner sub-fund produced 9.6%, the LPFA said, adding that both had outperformed their set benchmarks over one and three years.

It also said fund costs had continued to fall during the year, both as a percentage of net assets and in absolute terms per fund member.

“Fund management costs as a percentile of assets under management also have been reduced, and it is our intention to reduce those further,” it said.

Susan Martin, interim chief executive at the LPFA, said the authority was always looking for improvements.

“In particular, as we move into a highly evolutionary period for the LGPS, we will continue to focus on closing the funding gap, in particular through the active management of liabilities,” she said.