The £5.5bn (€6.7bn) South Yorkshire Pension Fund returned 5.7% over the year to 31 March 2014 as it slowed its currency hedging programme to accommodate its triennial valuation.

The local authority fund, which provides defined benefit (DB) pensions to council works in Yorkshire’s southern most county, made significant returns on European and US equities, which form part of its 40.3% international equity portfolio.

Those holdings returned 17.2% and 10.4%, respectively, but its overall international portfolio returned 4.4% due to losses in Pacific ex Japan and other economies.

The pension fund manages its equity portfolios actively, and in-house, since setting up an internal management team in the 1980s.

Its 10.7% property exposure saw returns hit 13.3%, slightly below benchmark but enough to convince the fund to increase allocations to the asset class.

In the fund’s annual report, fund director John Hattersley said the investment team became concerned after fixed income and equity failed to provide the risk/return trade-off the fund desired.

“As the belief grew that neither fixed income nor equity markets appeared to have adequately priced in the potential downside risks to their valuations, the allocation to property was added to,” he said.

Private equity, a relatively new asset class for the fund, continued to perform well, as returns reached 7.9%.

It now allocates 4.7% of its overall portfolio to this asset class.

“The fund did more than survive,” Hattersley said. “It actually performed quite well despite it being a period through which being a successful buyer and a seller was not easy.

“The world is neither monolithic nor stagnant, and the fund adapted its strategy as the situation evolved.”

The fund also revealed it was curtailing its currency hedging programme as the scheme began its triennial review at the end of March this year.

It began preliminary work on pre-empting the results of its triennial valuation, which means it needs to ensure the investment strategy remains workable with actuarial assumptions.

“The valuation took longer than expected to finalise,” Hattersley added.

We will probably concentrate on re-jigging the fund’s allocation to corporate bonds and absolute return funds.”

The fund’s asset value rose from £5.2bn to £5.5bn after successful investment performance.

In March 2013, the scheme had a funding level of 76% on an actuarial basis.