NETHERLANDS - The €3.1bn pension fund of UWV, the Dutch employment and benefits agency, has substantially shifted the focus of its asset allocation and is considering further changes in light of recent market turbulence.

The scheme has now replaced several actively-managed equity portfolios with passive mandates following last year's recent crisis.

Similarly, in order to protect the scheme against inflation risks, officials said the pension fund has started participating in index-linked debt, and is considering further measures as part of a broad review of its strategic asset allocation.

The Stichting Pensioenfonds UWV is said to be looking at possible future investments, such as in infrastructure, energy and healthcare as well as reviewing the impact that ageing could have on its liabilities and risk strategy.

This is despite the fact that the scheme managed to limit the damage to its investments caused by the credit crisis last year by not rebalancing its asset mix after volatility in the financial markets.

Maintaining its existing asset mix in 2008, even though it causes losses and dislocation in the target allocation strategy, limited the negative returns on investments to no more than -8.3% and left the a cover ratio of 99.5% by the end of the year.

The scheme's annual report figures revealed the equity allocation dropped by almost 10% to 18.5% during 2008, while the fixed income portfolio increased by a similar percentage to 64.2%.

Officials also attributed the limited loss to the hedge - through long-term interest rate swaps - of the interest rate risks on liabilities, which had been increased to 60%.

The UWV scheme had also strategically covered 50% of the risks on the main currencies, as well as the full risks on its non-euro fixed income investments.

Fixed income was the UWV fund's best returning asset class with returns of 15.9%, however, all other asset classes performed negatively, as equities returning -44.2%, and property, convertibles and commodities yielded -10.2%, -20% and -44.8% respectively.

Officials said steps have been taken to limit credit risks in the actively-managed fixed income portfolios as well as in securities-lending through its custodian BNY Mellon.

Although its mandatory recovery plan for its funding shortfall allows the scheme to recover within five years, officials plan the scheme back to its regulatory funding levels within three years, but will do without granting indexation and without raising its contribution level of 19.1%.

The UWV scheme last year granted its 18,755 active and 27,697 non-active participants an indexation of 3.2% and 1.2% respectively.

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