NETHERLANDS - The Dutch pension fund of energy giant Shell saw its assets drop by over 43% to €10.6bn last year, and its cover ratio plummeted from 180% to 80%.

The sponsoring company has already contributed an additional €2bn to the scheme to try and plug the resulting €2.6bn funding gap, and has promised to make extra payments if needed to restore the cover ratio to the required minimum of 105% during the next two years, the scheme said in its annual report.

According to the Stichting Shell Pensioenfonds, the dramatic results were not only caused by losses on its 70% equity allocation, but also by its relatively large allocation to fixed income investments in emerging markets and in corporate bonds.

Further losses were felt through the loans the pension fund used to finance its hedge funds overlay as well on almost all of its active strategies.

The 56.7% negative return on the scheme's equity portfolio was the main contributor to the overall performance of -43.3% in 2008, which was 16.5% short of its benchmark.

Investments in fixed income, hedge funds and alternatives - such as private equity, property and hedge funds - returned -9.1%, -21.1% and -20.2% respectively, reported the pension fund.

Responding to the developments on the financial markets, officials said the scheme has shifted 20% of its traditional 70% equity allocation into its fixed income portfolio and allocated an additional 5% to a new alternatives portfolio.

In addition, an asset-liability study for its long-term recovery plan has led to a new strategic benchmark consisting of 35% fixed income, 45% equity and 20% alternatives which should have been implemented by the end of 2011, officials indicated.

The Dutch scheme's allocation to fixed income, equity and alternatives was 57%, 28% and 17% respectively by the end of 2008.

The pension fund, whose assets are managed by Shell Asset Management Company (SAMCO), said it had fully hedged its risks on the main currencies and had also hedged the interest rate risk to €6.6bn of its liabilities.

Following the deteriorating financial situation, the scheme has raised the 2009 contributions for employer and workers to 32.1% and 3.2% on average respectively, according to officials. Because of its initial high cover ratio, it had lowered the premiums in 2008 to 5% and 2% respectively.

Although the Shell pension fund will refrain from paying indexation it still expects to be able to grant ndexation of 90% of the consumers index in the long run.

The Stichting Shell Pensioenfonds has 11,690 active participants, 6,700 deferred members and 19,555 pensioners.

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