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TNO pension fund avoids 2011 loss with extensive interest hedge

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  • TNO pension fund avoids 2011 loss with extensive interest hedge

NETHERLANDS - The €2.3bn pension scheme for TNO turned a 1.7% loss on investments into a positive result of 6.6% over 2011 due to an extensive hedge of the interest risk on its liabilities.

The 8.6% return of the 65% interest hedge also cancelled out the 0.4% loss on its 60% hedge of the main currencies, according to the scheme's preliminary annual report.

Private equity was the best performing asset class, delivering 10.6% in 2011, while fixed income returned 3%.

In contrast, property fell by 16.6%, while equity and hedge funds also produced negative results of -7% and -7.2%, respectively.

However, during the last quarter, equity returned 9.6%, with fixed income and private equity delivering 1.5% and 2.5%, respectively.

At year-end, its coverage ratio was 99.6%, which was still in lined with its recovery plan.

In other news, the €14bn scheme for electronics giant Philips reported a quarterly return of 1.4%, mainly due to the 4.3% performance of its return portfolio, with 29% of the scheme's assets.

The return portfolio consists mainly of equity, property and commodities and aims to generate extra returns for indexation.

According to the pension fund, the return portfolio underperformed by 0.7%, with hedge funds, private equity and high-yield bonds in particular falling short of their respective benchmarks.

The pension fund's liabilities-matching portfolio of fixed income investments generated 0.8%, falling 0.2 percentage points short of its benchmark.

It added that its funding ratio increased by 1 percentage point to 103% at year-end and attributed this to the temporary discount rate for liabilities of a three-month average, rather than the actual forward curve.

The scheme's required minimum funding is 104%, while its required financial buffers equate to a coverage ratio of 108%.

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