NETHERLANDS - The €12.3bn pension fund of bancassurer ING is on track to keep its financial reserves above the required level due to an extensive hedge of both interest risk and equity risk.
Last year, the scheme focused on protecting its cover ratio by increasing its 44% hedge of the interest risks on its liabilities to more than 100% through government bonds and interest swaps, according to its annual report.
The pension fund also raised the hedge of its equity portfolio to approximately 80% through options with different durations.
Daan Heijting, director of the pension fund, said: "The combined hedge has a buffering effect, leading to a cover ratio of 115% at the end of May, which is one percentage point above the required financial reserves."
In addition to an update of its asset-liability study and a new continuity analysis, the ING scheme has also developed a 'risk dashboard', showing financial risks to its funding ratio, and how to monitor and steer its risk position.
The pension fund of the bancassurer reported returns on investments of 15.2% over 2009, after a 12.2% loss for the previous year.
With a total yield of 37.3%, its equity holdings proved particularly strong, with investments in emerging markets returning as much as 70%.
The scheme's fixed income portfolio generated 6.4%, with government bonds and corporate bonds returning 3% and 21.9%, respectively.
Its hedge fund holdings delivered 10.8%, outperforming their benchmark by 6.7%, largely due to credit and equity strategies.
Although listed indirect property returned 12.5%, the scheme's combined real estate investments fell by 0.7%, whereas its private equity portfolio yielded 7.9%.
The Stichting Pensioenfonds ING also said it had introduced a 3% strategic commodities allocation at the expense of its 53% fixed income allocation, adding that it left its strategic holdings in equity, property and alternatives unaltered at 32%, 10% and 5%, respectively.
However, the pension fund said that, following the extraordinary market conditions last year, it had decided to temporary ignore the lower strategic margins of most asset classes and invest all available assets in government bonds, leading to fixed income holdings of 56.7% at year-end.