NETHERLANDS - The €1.8bn pension fund of Exxon Mobil has managed to keep its coverage ratio above the required funding level to offer indexation despite negative investment returns of 1.2% in 2011, with payments from scheme employers helping to boost its funding.

However, in an effort to reduce equity risk, the fund decreased its 60% strategic securities allocation to 50% in favour of its fixed income holdings, with the annual report now showing a shift to an equal split of assets between stock and fixed income.

The scheme - ‘Protector’ - closed the tax year with a coverage ratio of 125%, whereas is legal requirement for financial buffers equates to a funding of 123.6%.

Following from previous agreements with employers - who had contributed €258m in November - Protector said it returned the surplus amount of €16.8m to its sponsors.

Given its comfortable financial position, the final salary scheme was also able to grant its pensioners and deferred participants an indexation of 1.75% on 1 January 2012.

The board however added that it has responded positively to a suggestion by internal supervisors to look into the possible effects of sponsors discontinuing their financial promises, as well as the impact a further economic downturn.

Following a liability driven investment (LDI) study, Protector’s board said it would  gradually convert its five-year bond holdings into long-term paper, in an effort to increase the duration match with the liabilities and to decrease the portfolio’s interest risk.

The Exxon Mobil pension fund does not have a currency hedge in place, but said that it reduced risk to euro-denominated investments to 35% as a result of periodical re-balancing.

The scheme reported a return of 4.1% on its fixed income holdings, whereas its securities yielded -5.4%. Its 3.2% property portfolio generated 5.3%.

Protector has 1,610 active participants, 1,090 deferred members and 2,215 pensioners.