NETHERLANDS - The €5.2bn pension fund for medical consultants SPMS suffered market turbulence in the first half of this year, like many other pension funds, and saw its return drop -4.9% as a result.
In the same period, the scheme's cover ratio dropped by 7% to 139% but the occupational pension fund's required financial buffer still looks secure as it is based on a funding ratio of 130%, after a 3% indexation.
SPMS reported an overall return of 2.5% during 2007, mainly thanks to the performance of its property portfolio as well as the currency hedge against the US dollar.
That said, the overall yield fell 0.4% short of the benchmark, which SPMS attributed in part to the poor performance of its quantitative managers.
"We think this was caused by a massive unexpected sale of liquid investments by hedge funds in August and November," CEO Jeroen Steenvoorden told IPE.
The scheme's strategic hedge of the main currencies, through futures, also led to a 3% positive gain.
Property - representing 12% of the scheme's assets - returned 2.3% and market conditions allowed SPMS to increase its non-listed property commitments from 24 to 36 funds, the scheme indicated.
That said, SPMS' new alpha mandate for a fund of hedge funds and GTAA performed negatively, returning -2%.
In contrast, private equity yielded 12.9% last year.
The main asset classes equity and fixed income - with a strategic allocation of 37% and 42% respectively - generated negative and positive returns of -2.2% and 0.3% respectively.
The scheme also decided to gradually alter its 42% allocation to fixed income by shifting much of its investment from Europe to the US, according to the scheme.
"Because of the uncertainty in the financial markets, US fixed income investments gained from the ‘flight to quality'", it explained.
In addition, SPMS allocated €45m to a new ‘core plus' portfolio of US dollar fixed income investments, excluding government bonds - an initial move which, according to Steenvoorden, will be followed by a significant increase in the near future.
SPMS decided last year to hedge 50% of the difference between the interest curves of the euro and the US dollar through interest swaps but officials say it will increase this hedge again if the allocation to fixed income investments in US dollars is adjusted.
The scheme has also introduced an ‘initial' 10% hedge of the interest rate risk for its liabilities, according to its chief executive.
At the same time, the occupational scheme has decided to return the investment administration from pension provider DPFS to its custodian JPMorgan.
"The ever increasing demands of investment administration made this a logical step," Steenvoorden explained.
DPFS will remain the scheme's asset manager, managing over 30 external asset managers, he stressed.
SPMS granted its 7,000 active participants, 5,400 pensioners and 1,400 deferred members an indexation of 5% last year and 3.6% in 2008 and has committed itself to a guaranteed compensation for inflation of 3%.
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