The €19.8bn Philips Pensioenfonds said it will reduce its 7.5% cash holdings to 1%, in order to spread the investment risk in its liability-driven investment (LDI) portfolio.
In its annual report for 2019, the pension fund explained that, although its cash holdings had protected its funding position during the crisis, its returns were usually lower than those generated by other asset classes.
With a loss of 0.5%, cash was the scheme’s only asset class generating a negative return last year.
The pension fund attributed the outcome to the effect of the European Central Bank’s (ECB) negative interest rates on short-term loans.
It started its cash position in 2017, investing the assets in “low risk” capital market funds and short-duration loans.
The freed up cash will be reinvested in the existing asset classes in the scheme’s portfolio, it said.
The Philips Pensioenfonds posted an overall return of 16.6%, with its 30% – passively managed – equity allocation returning 29.5%.
It said that most of its actively managed portfolios had exceeded their respective benchmarks, and that worldwide credit and high yield credit had delivered 11.9% and 16.9%, respectively, thanks to a higher risk profile.
Emerging market debt had gained 15.8%, due to investments denominated in local currency combined with anticipating currency market movements, it added.
The pension fund lost 2.2% on its currency hedge as a consequence of the US dollar appreciating relative to the euro.
It said that, following an evaluation, it had decided to halve its full hedge of its equity holdings.
The pension fund attributed a €20 drop in administration costs per participant to €92 in part to it simplifying its pension arrangements.
Asset management and transaction costs had remained stable at 24 and 6 bps, respectively, it said.
During the first quarter of 2020, the scheme saw its assets decline by €1.5bn and its funding drop three percentage points to 111.2%.
Based on its coverage at year-end, it granted its participants an inflation compensation of 0.6% as of April 2020.
Indexation in arrears for workers now stands at 15.3%, while pensioners and deferred members are facing a indexation shortfall of 11.3%.
The Philips Pensioenfonds also serves Signify, the Philips offshoot focusing on LED lighting.
The scheme has 53,505 pensioners, 13,525 workers and 31,295 deferred participants.