NETHERLANDS - The €3.3bn Dutch pension fund PNO Media has decreased the interest hedge on its liabilities by one-third to profit from expected interest rate increases.

Because interest rates had dropped to "a very low level" in August, the scheme decided to lower its interest hedge from 75% to 50%, it said.

The industry-wide scheme said it had taken a first step - decreasing the interest cover to 60% in a risk-neutral move - by simultaneously selling equity index-tracking futures to decrease its equity exposure by 3% to 28%.

That said, PNO Media also made clear that it had profited from its interest hedge during the first nine months of 2010, when it saw its returns almost double to 14.9%.

The media scheme said its coverage ratio increased by 1.5 percentage points to 92.4% in the third quarter.

However, following decreasing interest rates in October, its funding ratio dropped again below its mapped out recovery, raising the prospect of benefits cuts on 1 April 2012, it said.

The scheme added that the possibility of a future discount had been increased by the fact it still needed to factor in the latest longevity figures of the Actuarial Society, which will reduce the coverage ratio by approximately 2.5%.

PNO Media reported returns on equity of 4.7% in the third quarter, whereas its holdings in infrastructure and private equity returned 4.2% and 2.9%, respectively. Fixed income returned 1.9%.

Commodities were the worst performing asset class, losing 2.9%.