NETHERLANDS - The €2.1bn pension fund of TNO, the Dutch institute for applied science, has returned 7.9% during the first six months of 2010.

With a return of 17.4%, private equity was TNO’s best performing asset class, while equity and fixed income yielded 5.9% and 5.3% respectively.

Hedge funds also contributed positively with a return of 2.5%, but the property portfolio was more disappointing generating a 3.8% loss, the pension fund said.

During the first six months, the scheme’s cover ratio dropped from 111.1% to 106.5% at the end of June.

TNO officials said the decrease in funding levels was attributable to the steep drop of long-term interest rates - against which pension funds must account their liabilities - in the second quarter.

As a consequence, the TNO scheme said it was now slightly behind the improvements as mapped out in its recovery plan.

The recovery plan targets a cover ratio of 112% at the end of 2010; based on its risk profile, the scheme’s required financial reserves equate to a cover of 117.3%.

The TNO pension fund returned 6.1% in the first quarter, with equity, fixed income and private equity returning 8%, 3.2% and 7% respectively.