NETHERLANDS - A total return of 14.3% in 2009 pushed the cover ratio of Stichting Pensioenfonds Openbaar Vervoer (SPOV) to 118%, enabling it to grant more than a full indexation in 2010.
The strong investment performance, which included returns of 35.5% and 36.8%, respectively, from the pension fund's equity and tactical equity portfolios, prompted the €2.3bn public transport pension fund's cover ratio to recover quickly from its 105% level in March 2009.
In addition to offering full compensation for inflation, SPOV was also able to increase pension rights by one-third of the indexation that could not be granted for 2008, as inflation has been low, according to the latest annual report.
Almost all of SPOV's investment portfolios have outperformed their benchmarks, with commodities exceeding their index by over 15 percentage points, returning 28%, The industry-wide scheme attributed this to high oil prices.
The scheme's combined 36.9% allocation to fixed income returned 8.8% on average, generating 5.6% on government bonds, and 23% on euro-zone corporate bonds. Emerging market debt produced a return of 30.4%, while the mortgage portfolio delivered 16.3%.
The pension fund's private equity portfolio produced a negative performance of -3.3%, placing it 33.5 percentage points short of its benchmark. Officials attributed this significant underperformance to the index lagging behind the developments on the equity markets.
The scheme said it had decided to fully focus its strategic equity portfolio on the long term and to concentrate risks by further spreading its investments. In addition, the pension fund had raised the interest hedge on its liabilities to 60%, largely through interest swaps and long-term European government bonds, and after merging its strategic and tactical fixed income portfolios.
SPOV said it had already fully hedged the risks on the most important currencies, while it is managing its liquidity risk by focusing on investments that are easy to sell, such as government bonds.
The pension fund further indicated that it has extended its contract for pension administration and asset management with provider SPF Beheer for another five years.