Rabobank’s €22bn pension fund has reduced its interest hedge by 10 percentage points and dropped its currency hedge in favour of an equity hedge after conducting a risk-premium assessment, according to its 2014 annual report.

The pension fund also put in place triggers for investing in swaps and options to keep “upward potential” in its portfolio whilst covering tail risks.

The pension fund returned more than 17% last year, attributing 8 percentage points to the combined interest, equity and currency hedges.

Equity was the chief driver, returning 12%, while private equity returned 22.6%, risk-parity investments 21.5% and fixed income 8.3%.

The Rabobank scheme said it aimed to increase its real estate allocation from 8% to 10%, focusing on student and care housing, as well as on transforming empty office buildings into residential property.

Its real estate portfolio returned 4.8% last year, including 4.4 percentage points from direct returns.

The commodities portfolio, however, lost 32.8% due to slowing economic growth in China and falling oil prices.

The pension fund introduced a credit mandate aimed at improving risk-corrected returns and started investing in residential mortgages through Achmea’s Private Mortgages Fund. 

It also increased the diversification of investment styles and asset managers, it said, with a view to improving the performance of its equity portfolio.

The Rabobank scheme saw its funding fall by 5.4 percentage points to 119.1%, as rising liabilities, resulting from falling interest rates, exceeded its annual return.

At year-end, it estimated its real funding at 79.6%.

In the annual report, Bert Bruggink, Rabobank’s chairman, criticised the Dutch government for “cost-increasing” measures, such as abolishing VAT exemption for services from external providers, as well as scrapping its contribution to supervisors.

He argued that the regulators, urging pension funds to limit costs, were in fact contributing to cost increases at Dutch schemes.

Last year, the pension fund paid €0.7m to the DNB and the AFM for supervision.

The Rabobank Pensioenfonds reported administration costs of €184 per participant and spent 0.44% of its assets on asset management, including 0.19% for transactions.

Last year, it granted its 99,000 participants and pensioners a 1.1% indexation, paid out largely from a dedicated €500m reserve.