NETHERLANDS - The €4.6bn pension fund of UWV - a provider of worker insurance in the Netherlands  - returned 11.6% on investments in 2011, following the introduction of a defensive investment strategy.

The pension fund had reduced its equity and property holdings to 16.5% and 6.8%, respectively, and increased its fixed income allocation to 67.7%, according to its annual report.

As a consequence, the scheme’s required buffers dropped from €624m to €496m, while its required coverage ratio fell from 116% to 112.8%.

Following an asset-liability management study, the board at UWV decided to establish a strategic benchmark portfolio, consisting of a liability-matching portfolio, a return portfolio and an alternatives portfolio.

In the annual report, it said it had just started the construction of the alternatives portfolio, which is to consist of indirect property, infrastructure, commodities and private equity.

In addition, the scheme placed its assets with specialised managers, with Allianz Global Investors as “co-ordinating” asset manager, and BNY Mellon as custodian and collateral manager.

As part of its new investment strategy, the board also introduced a dynamic overlay strategy, with various derivatives as steering instruments.

The pension fund said it had hedged 60% of the interest risks on its liabilities through AAA, euro-denominated government bonds, inflation-linked bonds and interest swaps.

Despite its return on investments, UWV saw its coverage ratio drop to 100.4% at year-end, mainly due to falling interest rates, the criterion for discounting liabilities.

To recover to the required minimum funding of 105%, the pension fund said it had drawn up a new recovery plan, based on a maximum contribution of 20% of the salary, an assumed return on investments of 4.9% and a required funding of 113%.

It has also decided to decrease the yearly pension accrual in case of a funding shortfall in combination with a non-costs-covering premium.

The scheme reported losses on equity of as much as 21% for investments in the euro area, but positive returns of 14.8% on euro-denominated, AAA government bonds.

Its property holdings returned more than 3%, with international indirect property generating more than 10%.