The €3.8bn pension fund of former Dutch insurer Delta Lloyd said it had split its matching portfolio into sub-portfolios for liability-driven investments (LDI) and “spreads”.
In its annual report for 2019, it announced it had allocated two-fifths of its 75% matching portfolio to LDI holdings, including long-duration euro-denominated government bonds, interest swaps and cash.
It said it had invested the remaining assets in Dutch residential mortgages, euro-denominated credit as well as corporate green bonds.
According to Theo Krekel, the scheme’s chief executive officer, breaking up its liabilities portfolio would make management easier, as its spreads holdings could also be deployed to generate returns.
The Delta Lloyd Pensioenfonds said it will implement changes to its 25% return portfolio this year, including a reduction of its developed markets equity investments by one-third to 50% of its overall return portfolio.
It will also raise its stake in emerging market equity as well as real estate to 16.7%, while introducing a portfolio for emerging market debt of a similar scale.
Krekel explained that the portfolio changes followed the scheme abolishing its reinsured arrangements in 2017.
It said that an asset-liability management (ALM) study – completed at year-end – had confirmed the portfolio changes underpinned a solid investment approach.
The ALM also suggested the pension fund should reduce its investment risk at higher funding levels through increasing its liabilities portfolio at the expense of its return holdings.
Last April, the pension fund’s coverage ratio stood at 125.2%, a decline of no more than 1.6 percentage points since year-end.
Its funding level had enabled it to grant all its participants and pensioners a full inflation compensation of 1.73%, drawn on the consumer index.
The pension fund closed on 1 January 2020, following a new collective labour agreement (CAO) at NN Group.
As part of the labour agreement, future pensions accrual of former Delta Lloyd staff will take place through NN’s CDC scheme.
The board of the Delta Lloyd Pensioenfonds said it had concluded that keeping the scheme for now was the best of the currently available alternatives, which also included a buy-out and joining a consolidation vehicle or another scheme.
The scheme said it will reassess its position in three-years time, but that it will keep monitoring its buy-out options in the meantime.
It also said it is in discussions with its new pensions provider – NN subsidiary AZL – about switching its IT system Lifetime to a new platform.
Whereas the scheme’s contract with AZL is to expire at the end of 2021, the provider wants to bring the change forward by one year, it said.
The pension fund attributed its 19.8% return on investments largely to the performance of its equity holdings, which generated returns of 27.6%.
The report disclosed that the scheme’s LDI portfolio, spread holdings and return portfolio had delivered 32.6%, 5.8% and 26.1%, respectively.
The Delta Lloyd Pensioenfonds reported administration costs of €391 per participant.
It spent 23bps on asset management and said a 5bps rise in transaction costs to 8bps was due to the reconstruction of its matching portfolio.
The scheme has 2,365 active participants, 7,020 deferred members and 3,670 pensioners.