The €14.7bn Dutch pension fund of electronics giant Philips saw its coverage ratio increase to 106% over the third quarter on the back of a 0.6% return on investments and a widening discount rate.
It said the 3.6% result on its 30% return portfolio more than offset the 0.7% quarterly loss reported over the same period on its 70% liability-matching portfolio.
The pension fund attributed the performance of its return portfolio in particular to rising equity markets and indirect property holdings, which represent 52% and 15%, respectively, of the portfolio.
However, it also noted that the 3.6% return still underperformed its benchmark by 0.3 percentage points, due mainly to poorly performing emerging market bonds, which make up 11% of the portfolio.
The Philips scheme has divided its assets into a return portfolio and a liability-matching portfolio of fixed income investments in order to finance its liabilities, including a long-term inflation target of 2%.
Its return portfolio – consisting of equity, property, emerging market bonds and high-yield credit – is meant to bolster the pension fund’s financial buffers, finance its longevity risk and account for excess inflation.
Last year, the liability-matching portfolio returned 13.6%, while the return portfolio returned 11.4%.
Philips Pensioenfonds’ 106% coverage ratio is now 2 percentage points over the minimum required level, but 1 percentage point short of its required financial buffer.
The pension fund said it would only consider granting indexation once its coverage exceeded 107%.
The Philips scheme has 14,130 active participants, 59,275 pensioners and 32,900 deferred members.