NETHERLANDS – Progress, Unilever’s €4.4bn pension fund in the Netherlands, has credited the dynamic fine-tuning of its investment policy for its 103% funding in real terms.

The pension fund also announced that it returned 18.1% on investments in 2012.

Its equity and fixed income portfolios – each accounting for 39.6% of the scheme’s assets – returning 19.8% and 12.4%, respectively.

In its 2012 annual report, the scheme attributed its success in stabilising its real funding to “slight readjustments” to its investment and hedging policies, focusing on limiting downside risk.

As part of its asset-mix diversification policy, the scheme said it reduced the size of its equity and government bonds portfolios in order to increase its exposure to local-currency emerging market debt.

It also replaced part of its equity portfolio with “more balanced”, risk-based equity investments.

As part of its dynamic anti-cyclical investment policy, Progress slightly reduced its strategic allocation to commodities and property, while raising the weighting of fixed income.

It added that its dynamic investment policy also aimed to limit adjustments to more illiquid asset classes, in order to keep costs down.

The pension fund reported a 0.1 percentage point outperformance on European government bonds, with its high-yield bonds and emerging market debt returning 15.9%.

It also said it would allocate 10% to minimum-volatility strategies for equity.

“As these strategies underperformed 3-4% last year, this offers good opportunities for a start,” it said.

The scheme, whose 3.3% private equity allocation returned 11.1% last year, said it would increase investment in Asia through a fund of funds.

The scheme’s investments in commodities and property returned -0.6% and 5.5%.

Last year, the Unilever scheme implemented a new risk control framework – covering 19 potential risks – and appointed an investment risk controller to monitor the outsourced asset management.

The pension fund said it strategically hedged 80% of the currency risk on its equity investments and 100% on the other asset classes.

In 2012, it reduced its interest hedge by 11 percentage points to 49%, while raising the cover of its inflation risk by 6 percentage points to 50%.

The pension fund, whose hedges contributed 4 percentage points to its annual return, estimated that its real funding would have been 3 percentage points lower without this boost.

It added that it planned to grant its 22,790 participants the 2.53% inflation compensation it was unable to pay in 2009 if its funding was still over 100% at year-end.

Last January, it granted its active participants a 2.25% indexation, while awarding its deferred members and pensioners with an inflation compensation of 1.98%.