NETHERLANDS - The €5.8bn pension fund for Dutch housing corporations (SPW) has suffered from the combination of its extensive hedge of the interest risk on its liabilities and rising long-term interest rates during the last quarter of 2010.
The scheme reported a loss of 3.8%, which it mainly attributed to the effect of the 72% interest hedge through swaps.
Due to the considerable increase in long-term interest rates during the fourth quarter, SPW saw the value of its swaps fall from €800m to €433m.
SPW’s quarterly result included a negative performance of 0.9% of its full equity hedge - through options - at 75% of the strike level, according to Harald de Valck, the scheme’s director.
Without the hedge, the return on investments would have been 3.2%, he said.
However, the rising interest rates - the criterion for accounting liabilities - caused a decrease in SPW’s financial commitments.
As a result, the scheme’s coverage ratio rose by 6.5 percentage points to 103.2% at year-end, and increased further to 105% in February.
With a return of 16.8%, commodities was the best performing asset class, beating its benchmark by 1.4 percentage points.
Equity and hedge funds generated 10.3% and 10.2%, respectively, while SPW’s listed property investments delivered 8.1%.
In contrast, with a loss of 2%, fixed income fell 0.5% short of its benchmark, according to the industry-wide scheme.
SPW also reported returns of 1% and 3.1% for non-listed property and private equity, respectively.
In the third quarter, the Stichting Pensioenfonds voor de Woningcorporaties returned 5.4% on investments and another 3.8% from its interest hedge.
During this period, the long-term interest rates plummeted to 2.78%.