NETHERLANDS - Provisum, the €1.1bn pension fund of clothing retailer C&A, says its 25% exposure to AAA-rated euro-zone bonds was the main contributor to its 6% return on investments last year.

The investments in AAA government paper - making up its matching portfolio and consisting long-dated Dutch, German and French government bonds prior to the final country’s downgrade in January - generated no less than 23%, the scheme said in the 2011 annual report.

It further indicated that, under an ‘average scenario’ in 2012, bond holdings in its matching portfolio would be raised to account for 30% of investments and that it intends to increase its equity and property allocation to 27.5% and 15% respectively.

The C&A scheme lost €8.9m on its currency forward contract of €17.6m, following a strategic hedge of 75% of its positions in US dollars, Japanese yen and British pounds.

Although the C&A scheme saw its funding decrease by 8.9 percentage points to 117.7%, it is still one of the few Dutch pension funds without any funding shortfall and able to grant indexation.

It said it granted its pensioners and deferred participants a full inflation compensation of 2.61% for 2012, in line with the consumer price index.

In contrast with the return on fixed income investments, the pension fund’s 23.4% equity holdings delivered a loss of 4.1%, which it mainly attributed to disappointing results by many of its managers.

Provisum also reported negative returns of 6.5% and 3.9% on commodities and hedge fund holdings, commenting that, on balance, hedge funds only had a minor diversifying effect.

However, the 11.4% property allocation returned 3.5% and proved a stabilising factor, mainly thanks to the performance of direct property, according to the scheme.

The board said it has decided to complement its triennial asset-liability management study with an annual update to allow for interim adjustments to its financial situation and risk position through interest rate and currency hedges rather than solely through the investment mix.

Provisium also said it has asked the audit department of one of its affiliated companies to assess the set-up and functionality of its risk management plan, in addition to the regular visitation committee for internal supervision. 

Provisum reported pension administration costs of €295 per participant - excluding its deferred members - and combined investment costs of 62 basis points of its assets under management.

The pension fund of the clothing retailer has 3,850 active participants, 3,365 deferred members and 2,640 pensioners.