NETHERLANDS - Despite disappointing returns of 0.3%, the cover ratio of the €2.2bn pension fund of food retailer Ahold increased to almost 170% thanks to rising interest rates last year.
The scheme's board has consequently decided to cut the maximum required pension contribution by 20%, though this move is still subject to a continuity analysis and its subsequent approval by pensions regulator De Nederlandsche Bank, according to the scheme's annual report.
Alternatives were the best returning asset class of the Ahold scheme, delivering returns of 11.5% compared with a negative return of -1.2%. Alternatives now account for 5% of the scheme's assets, spread over eight private equity funds, two mezzanine funds and an infrastructure fund.
Equity yielded 0.4%, but this was almost 3% short of its benchmark so investments in emerging markets boosted returns, yielding 20.8%, the scheme reported.
The Ahold's scheme's 10% allocation to property investments returned 7.2% but the contrast in sector returns was significant. After returning 50% in 2006, listed property delivered a negative return of -27.8% in 2007 for the pension fund, while direct real estate yielded 13.6%.
The pension fund now intends to decrease its allocation to listed property from 37% to 20% of its real estate portfolio as a result.
Fixed income yielded 1.3% and the scheme extended the duration of its fixed income portfolio last year from 5 to 12 years, as part of its strategic investment policy. This measure led to an interest hedge of 45% of its liabilities, the annual report stated.
Furthermore, the Ahold pension fund hedged three-quarters of its currency risk, and has increased its allocation to alternatives by 2.5% at the expense of its equity portfolio.
The scheme's allocations to equity, property and fixed income were 45% and 40% at the end of last year.
Ahold's pension fund manages its currency risk by hedging 75% with currency forwarded contracts, according to the scheme, based on a three-yearly ALM study.
The scheme has 79,780 participants in total, of whom 26,865 are active members, 9,000 are pensioners and 42.540 are deferred participants.
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