Provisum cancels underperforming 'black box' strategy
NETHERLANDS - Provisum, the €1bn Dutch pension fund of retailer C&A, has terminated its global tactical asset allocation (GTAA) due to poor performance and lack of transparency.
No-one was available at the pension fund to confirm the name of the manager of the GTAA mandate, but the move was revealed in latest annual report for the pension fund, which also showed an improvement in its cover ratio from 119.8% to 129.4% in 2009.
The GTAA strategy saw negative returns of -26% in 2007, as it struggled to cope financial market volatility, prompting Provisum to increase its scrutiny of its future performance and to consider whether to maintain the allocation. (See earlier IPE article: GTAA created 26% loss for Provisum)
“Besides disappointing results, the portfolio was a kind of black box, with the board having difficulties gauging what was going on,” said Bart Linthorst, director of Provisum. “Moreover, the GTAA didn’t contribute sufficiently as a diversifier, as we had hoped for.
The GTAA allocation represented only 2.1% of total pension fund assets (at the end of 2008), and Provisum generated a total return of 12.3% for the 12-month period, outperforming its benchmark by two percentage points.
The pension funds’s equity holdings (29.7% of total assets) returned 29%, while its fixed income portfolio (48% allocation) generated 8.1%.
Provisum attributed the 16% return of its hedge funds portfolio in part to its investments in convertibles strategies, which doubled within five months.
Its property holdings - equating to 14.4% of its assets - posted negative performance of -1.9%, mainly due to adverse results of its indirect property portfolio.
Meanwhile, the €3bn pension fund of PNO Media reported a return on investments of 4.7% during the first three months of 2010, taking its cover ratio to 97.4%.
Its funding ratio decreased by 0.7 percentage points during the first quarter, due to a decrease in long-term interest rates by 25 basis points, causing a 4.6% rise of its liabilities.
Investments in equities, private equity and commodities were the main contributors to the increase of the scheme’s assets, returning 7.3%, 7.1% and 5%, respectively.
Fixed income generated 3.3%, while non-listed real estate and infrastructure delivered 1.1% and 0.9%, respectively. Listed real estate produced a loss of -2.2%.
At the end of March, PNO Media’s investment portfolio consisted of 38.5% equity, 39.6% fixed income and 22% alternatives, only slightly off its strategic allocations targets of 36%, 39% and 25%, respectively.
In order to protect itself against a decrease of long-term interest rates, the scheme said it had purchased additional long-term swaps, taking its interest hedge on liabilities to 51%.