The €16.7bn pension fund for electronics giant Philips is looking to improve its financial position by scaling back its risk-avoiding fixed income portfolio in favour of riskier investments.
As a consequence, it is to replace some of its holdings in euro-denominated bonds with UK and US government bonds, as well as credit.
In addition, it plans to exchange some bonds for equity, it said.
A spokeswoman for the scheme told IPE the adjustment of the investment mix must result in a 60% liability-matching portfolio and a 40% return portfolio.
Currently, the liability-matching portfolio accounts for 70% of the scheme’s assets, divided across euro-denominated bonds (62.5%), global government bonds (15%), credit (15%) and Dutch mortgages (7.5%).
The portfolio’s aim is to finance 64% of the pension fund’s nominal liabilities.
The scheme’s remaining assets have been placed in the return portfolio, meant to finance remaining liabilities, unexpected inflation, longevity risk and indexation.
The return portfolio consists of equity, property, emerging market debt and high-yield credit.
The new investment mix is expected to generate an extra return of 0.5-1 percentage points, according to the spokeswoman.
Following the pension fund’s increased risk profile, its required coverage ratio – currently 107% – should rise, the scheme said.
The Philips Pensioenfonds, which has a funding of 115% at the moment, said its financial position had gradually deteriorated as a consequence of its predominantly risk-avoiding investment portfolio.
Since 1 January, the scheme has offered a collective defined contribution plan, with the employer contributing 24% of the combined salaries but not required to meet any shortfall.
The pension fund reported a second-quarter return of 5.4%.
It said its liabilities portfolio generated 6.2% due to falling interest rates, and that its return portfolio delivered 3.6%.
The pension fund has also changed its board set-up, following the introduction of new legislation for pension fund governance on 1 July.
Since then, it has had an independently chaired non-executive board of employer, social partners and pensioners, and an executive consisting of its chief executive and CIO as independent experts.
The Philips pension fund has 57,400 pensioners and 31,300 deferred members, as well as 14,200 active participants.
The scheme reported an investment result of 0.9% over 2013, following a 4.3% loss on its liabilities portfolio and a 14.3% return on its return holdings.