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Real estate best performer at TNO scheme

NETHERLANDS - Real estate was the best performing asset class - yielding returns of 32.3% - of the pension scheme of Dutch technical research institute TNO in 2004.

TNO, which has assets under management of €1.7bn, reported average returns of 12.9%. Private equity and fixed-rate investments yielded 12.9% and 11.5% respectively, according to its annual report.

The coverage ratio has increased by 12% to 115% within the last year.

According to the board, a careful policy for a further recovery is however required because, based on the financial assessment framework, the fund still has a reserves deficit. The new rules, also known as FTK, require a coverage ratio of 130% ultimately.

TNO has been able to keep a final salary scheme. All pension liabilities are now indexed subject to the coverage ratio. “This will have a significant risks-lowering effect”, the fund explained. “Indexation now needs to be financed from the returns on investment.”

The scheme’s board has decided to limit the amount of equity by six percent, following an asset liability study. “The percentage of equity will be linked to the coverage ratio,” it said.

As part of an improvement process the scheme has attracted two investment experts in an advisory role and employed a ‘senior investment expert’ last year. In addition the board has arranged monthly reports of management information on equity positions.

In order to avoiding the risk of unlimited supplementing of fund’s deficits, the sponsoring company will guarantee €15m a year at the moment, plus €10m a year with a maximum of €50m over five years.

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